GST Council meetings have usually focused on cutting rates for products but that routine may come to a halt as revenue collection under the indirect taxation system has dropped drastically. A few days ago, Centre informed states that there are several concerns with regards to revenue collection and added that it will not be able to compensate them for losses.
When the GST Council meets in the second fortnight of December, it is likely to discuss ways to shore up revenue and it could result in some exempted items could make a comeback under taxation while some items could be moved to a higher GST slab, reports indicate.
The development comes particularly after Centre failed to pay GST compensation cess to at least five states. According to a report on the Times of India, the GST Council may also discuss restructuring of slabs under GST. Quoting top sources, the publication said the base slab of five percent will be increased to 9-10 percent while the 12 percent tax slab will be removed. At least 243 items could now find itself in the 18 percent bracket, added the report. The move will lead to an additional burden on customers but will help boost revenue collection by almost Rs 1 lakh crore.
Meanwhile, GST on several finished goods will also witness a rise as Centre is looking to rectify the inverted duty structure where inputs and raw material attracts a higher duty than the finished products. A recently released RBI report indicated that the effective GST rate in India has come down to 11.6 percent from 14 percent in May 2017, resulting in a reduction in government’s revenue to the tune of Rs two lakh crore. However, an increase in GST rates could create a situation of panic among people, especially in an economically weak environment. There could be a spike in short-to-medium term inflation due to the move, according to experts.
The government, on the other hand, suggested that the rise would result in minor inflationary pressure. But economists are of the view that recalibrating GST rates would require time and it could lead to further instability. All eyes would be on the next GST Council meeting which could pave the way for a three-slab GST rate structure and higher revenue collections.