GST Council may defer slab merger plan amid high oil prices

Ministers who were part of the GST Council said the merger of rates could be put on hold considering its impact on inflation. He said that the GST Council will assess the situation and decide on the timing of reforms. The Group of Ministers (GoM) tasked with the rate rationalization exercise has met twice so far and not much progress has been made with its recommendations.

West Bengal’s Minister of State for Finance Chandrima Bhattacharya, who is part of the GoM, said the panel was expected to meet on November 27, but the meeting was postponed. “We have not made much progress with regard to making recommendations. The new dates for the GoM meeting have not been informed yet.”

The GST Council had tasked Karnataka Chief Minister Basavaraj S Bommai-led GoM to look into rationalization of tax rates and consider merging of various tax slabs with an aim to boost revenue collection after June 2022, when states have to Compensation will stop. Revenue deficit from the Centre. Other members of the GoM include Bihar Deputy Chief Minister Tarakishore Prasad, Kerala Finance Minister KN Balagopal and Uttar Pradesh and Goa Finance Ministers.

“GoM could not be found as ministers from UP and Goa were not available as elections were held in these states. Now that governments are being formed in these states, the panel may meet soon,” said a finance ministry official, requesting anonymity.

The delay would mean that the next meeting of the GST Council, likely to be held in the second half of April, may not consider the recommendations of the committee on rate restructuring while pursuing compliance easing for taxpayers. Also, many states are not in favor of a merger which would increase the GST rates for products and services.

According to a central government official who discussed the rate merger, the GoM in its November meeting decided to do away with the exemption for commodities other than agriculture and those consumed by the poor. However, the GoM and the government have received several representations from stakeholders and industry against any upward revision in rates as it will affect the economic recovery and result in price hike, especially for those used by the health and food sectors. In outgoing goods because the GST rates on some items will increase at the rate of 12% at present.

Queries sent to a spokesperson of the Ministry of Finance on Tuesday morning remained unanswered till press time.

The problem of inverted duty structure arises when the finished product is in a lower tax bracket than the raw material. However, this usually leads to an increase in the GST rate of the finished product. Mobile phones saw such a fee improvement in March 2020.

Delhi Deputy Chief Minister and Finance Minister Manish Sisodia said the state is not in favor of any merger of rates, but would prefer a rate cut at this point of time which would only improve compliance. “Delhi supports low GST rates and high compliance. This is because higher tax rates encourage evasion. Raising rates is never a solution. AI (Artificial Intelligence) based enforcement and lower rates will only improve compliance and increase tax collection. In case of merger of two GST rates, taxes may have to be increased for some goods and services and may have to be reduced for some. This is not a fair system. Why merging rates? Sisodia said, why not reduce the existing rates only.

The GoM and the fitment panel are looking at items with an inverted duty structure such as renewable energy equipment, railway parts, pharmaceuticals, tractors, LEDs, incense sticks, inks, pens, utensils and water pumps. The items in the 12% slab include butter, cheese and jam. In case of merging of 12% and 18% slabs, the rates of these items will go up, leading to a tax rate of around 15% on both. However, items falling in the 18 per cent slab, including biscuits, mobile phones, cakes and pastries, will see a reduction in prices. Most of the services fall under the 18% GST slab.

There are four main GST slabs- 5%, 12%, 18% and 28%. In addition, there are special rates of 0%, 0.25%, 1% and 3%. In addition, some demerit items, including aerated drinks, attract a cess of between 1% and 25%. As for the rationalization of rates, key suggestions compiled by the fitment panel in 2019 include raising the rate on precious metals from 3% to 5%, taxing higher sectors of education and health and reintroducing rates on certain items that has come down from 28% to 28%. 18%.

Chhattisgarh Health Minister TS Singh Deo, who represents the state in the GST Council, said slab rationalization was important to simplify the very complex GST structure.