India could look at a calibrated increase in the goods and services tax (GST) rates to shield consumers from sudden price shocks, apart from minimising exemptions, as it seeks to lift tax revenue collections. A panel of officials on revenue augmentation, comprising officials from the states and the Centre, is reviewing the current rate structure. There is a view that rate increases can be carried out in a benign manner, either through small increases in lower rates or by moving some items to a higher bracket in tranches. “There is a need to re-look at the structure. How you do it is another issue,” said a government official. “You can do it in a calibrated manner to avoid sudden shocks.
This is one option.” About 150 items that are exempt from GST are likely to get a close look. There are over 260 items currently in the 5% slab. Processed items cannot be in the lowest slab or the exempt category because it also leads to problems of input tax credits for them and erodes their competitiveness, said the official. GST collections have averaged Rs 1,00,646 crore so far in the current financial year, short of about Rs1.12 lakh crore a month needed to meet the budget target. The panel’s suggestions are likely to be examined by the GST Council, the apex decision-making body for the tax, at its next meeting. The GST Council secretariat had asked the states on November 27 to suggest ways to boost revenue, including rate rationalisation and reducing exemptions. States such as Punjab suggested slabs of 10% and 20%, with a third rate of 25% for sin and luxury goods. Others such as West Bengal and Delhi do not back significant changes at the current juncture, especially pertaining to rate increases. Currently, GST has seven rate categories exempt, 0.25%, 3%, 5%, 12%, 18% and 28%.
The officers panel is also looking at how to minimise exemptions in both goods and services and raise the revenue-neutral rate that single rate of GST at which there is no loss of tax. This was estimated at 15.5% when GST was rolled out on July1, 2017. The panel had presented a paper at the previous meeting of the council, but was asked to look into issues in more detail and come back with a more comprehensive report. It had suggested restructuring slabs, increasing rates on some goods to correct inverted duty structures, including on mobile phones, and revisiting rates on items that had seen a reduction to 18% from 28%. Some businesses have asked to be moved from the exempt category or 5% tax bracket without input tax credit to the higher 12% rate where they can adjust tax paid on inputs against final liability. The panel had highlighted an over Rs 63,000 crore shortfall in compensation cess in the current financial year, which, with moderate revenue growth, is a key challenge.