Lowest GST slab may be raised by 3 percent, says report

The Goods and Service Tax (GST) council may be mulling a hike in the lowest GST slab of 5% in its next council meeting to take it up to 8%. Furthermore, the GST council may trim the list of goods and services exempted from the GST regime.

The council may be looking to rationalise the tax regime with a view to brining the revenues up and also decrease the dependence of states on the centre for compensation, as per a report by news agency PTI which cites sources.

The GST regime functions under four slabs currently, set at 5 percent, 12 percent, 18 percent and 28 percent.

Currently, GST is a four-tier structure attracting a tax rate of 5, 12, 18 and 28 per cent. With the rationalisation exercise, the council may also be looking to reduce the structure of the tax to three slabs of 8, 18 and 28. While this would mean that all goods and services under the 5 percent slab with come under the new 8 percent slab, all the goods in the 12 percent slab may be shifted to the 18 percent slab.

The lowest slab, which may be increased to 8%, contains most of the essential items that are not exempted from the regime. The higher slabs are for luxury buys and services. These include household necessities like sugar, spices, edible oil, coffee (barring instant), coal, life-saving drugs and Indian Sweets.

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Panel of state finance ministers to send report

The next meet of the GST council is expected to take place later in March or early April, as per the PTI report. The council will conduct discussions over a report from which is being prepared by a panel of state finance ministers. Likely to be submitted by month end, the report will suggest steps to increase revenue, rationalising slabs and hike in the 5 percent slab.

The raising of the lowest slab by 3% may bring additional revenue of Rs 1.5 lakh crore annually, as per the sources.

The timeline for which the centre needed to compensate states for the new regime will end in June 2022. Hence, the new changes on the cards will aim to bridge the gap in revenue for states.