To raise revenue with most of the states so that they do not have to depend center for compensationSources said the GST Council meeting next month is likely to consider a proposal to do away with the 5% slab by shifting some of the mass consumption goods to 3% and the rest to 8% categories.
Presently, there is a four tier structure of GST of 5, 12, 18 and 28%. In addition, gold and gold ornaments attract 3% tax.
In addition, there is an exemption list of items like unbranded and unpacked food items that do not attract levies.
To increase revenue, the council may decide to cut the list of exempted items by moving some non-food items to the 3% slab, sources said.
While discussions are on to raise the 5% slab to 7 or 8 or 9%, the final call will be taken by the GST Council which will include finance ministers from both the Center and the states, sources said.
As per calculations, every 1% increase in the 5% slab, which mainly includes packaged food items, will generate an additional revenue of roughly Rs 50,000 crore annually.
Though various options are being considered, the council is likely to settle for 8% GST (Goods and Services Tax) for most items, which currently attracts a 5% levy.
Under GST, essential goods are either exempted or taxed at the lowest rate, while luxuries and demerit items are taxed the highest. Luxury and sin goods also attract cess on top of the highest 28% slab. This cess collection is used to compensate states for revenue loss due to implementation of GST.
With the GST compensation regime coming to an end in June, it is imperative that states become self-reliant and not depend on the Center to bridge the revenue gap in GST collections.
The council had last year constituted a panel of state ministers, headed by Karnataka Chief Minister Basavaraj Bommai, to suggest ways to increase revenue by rationalizing tax rates and removing anomalies in the tax structure.
The Group of Ministers is likely to finalize its recommendations by early next month, which will be placed before the Council at its next meeting by mid-May for a final decision.
At the time of implementation of GST on July 1, 2017, the Center agreed to compensate states for five years till June 2022 and protect their revenue at the rate of 14% per annum on the base year revenue of 2015-16 Was.
Over the years the GST Council has often accepted the demands of trade and industry and reduced tax rates. For example, the number of items attracting the highest 28% tax decreased from 228 to less than 35.
With the Center taking its stand not to extend GST compensation beyond five years, states are realizing that raising revenue through higher taxes is the only option before the Council.