The rationalization of the goods and services tax (GST) structure into three slabs by merging two existing slabs is on the cards, and progress should be seen soon, chief economic adviser in the finance ministry Krishnamurthy Subramanian said on Thursday.
“It’s something that is definitely going to happen. The three-rate structure is definitely important, even the inverted duty structure that are there are also equally important to actually fix. The government is definitely seized of the matter. You should hopefully see traction on that soon,” Subramanian said while speaking at an event organized by industry body Assocham.
Subramanian said the original plan was to have a three-rate structure of GST. “But what we have to be very cognizant about is that often times with policy making, you don’t want perfect to become the enemy of the excellent. GST, the way it got created with five rates was basically an excellent move because now we are seeing the amounts that are coming in. The policy makers then must be given credit for being practical enough to say ‘let’s get it going first’,” he added.
India currently has four primary GST rates of 5%, 12%, 18% and 28%. There is also a cess on luxury and demerit goods such as automobiles, tobacco and aerated drinks. On precious stones and metals, special rates of 0.25% and 3% respectively is applicable. A proposal to merge 12% and 18% slabs into a single rate has been discussed in policy circles for several years, but no final proposal regarding this has been made at the GST Council which will ultimately take a call on it.
If the Council approves the merger of the two rates, items such as ghee, butter, cheese, and spectacles may become expensive, while soap, kitchenware and apparel may become cheaper.
In its report tabled in Parliament earlier this year, the 15th Finance Commission (FFC) urged restoring the “rate neutrality of GST”, which was compromised with multiple rate cuts.
“Restoring revenue-neutral rate will mean merging the rates of 12% and 18% and operating with a three-rate structure of a merit rate, a standard rate and a demerit rate of around 28% to 30% and minimizing (tax) exemptions,” said the FFC report, which recommended the ways of sharing Centre’s tax revenue with states for the period 2021-26.
Former finance minister late Arun Jaitely had also called for merging the two slabs. “A road map could well be to work towards a single standard rate instead of two standard rates of 12% and 18%. It could be a rate at some mid-point between the two…The country should eventually have a GST, which will have only slabs of zero, 5% and standard rate with luxury and sin goods as an exception,” Jaitley wrote in a December 2018 blog.