The Fifteenth Finance Commission (FFC) has suggested the Goods and Services Tax (GST) Council simplify tax rates by creating just three slabs, two officials with direct knowledge of the matter said on Sunday.
The suggestion is to come up with a standard rate of 17%, a lower merit rate for items of common consumption and a higher rate on luxury and sin goods, according to these officials who spoke on the condition of anonymity.
At present, the regime, billed as a game-changer by the government, has four rates (5%, 12%, 18%, and 28%).
Speaking at the Hindustan Times Leadership Summit on December 7, Union finance minister Nirmala Sitharaman, too, put forth a similar view.
“Eventually, we will, of course, have to rationalize [the rates]. Do we want so many slabs? Do we want to have just two or three slabs? The original intent was that we have just the three —merit, sin and the standard; just the three rates,” she said.
FFC suggested the GST Council simplify tax rates by creating three slabs
The works of the GST Council and the Finance Commission are essentially complementary. Both are constitutional entities, and are independent in their domains, FFC chairman NK Singh told HT last week. They function in the national interest, he added. He said the rationalization of tax rates, the timing and sequence are the GST Council’s prerogative.
A section of policymakers representing the Centre and states is keen to rationalize the tax structure into three slabs to simplify the system and boost revenue collection, which is subdued, and therefore, a cause for concern, said the two officials mentioned cited above.
Falling revenue collection is one of the key concerns of the Council, which was part of its agenda for discussion at its 38th meeting on Wednesday.
The apex decision-making body on the indirect tax, however, deferred deliberation to its next meeting pending comprehensive data and analysis on this matter, the two officials. The Council, which is chaired by the Union finance minister and has finance ministers of states and Union Territories as its members, usually meets every two months.
The economic slowdown affected revenue collections for three consecutive months
As GST a tax on consumption, the economic slowdown affected revenue collections for three consecutive months – August, September, and October. In these months, the revenue collection was below the Rs 1 lakh crore benchmark. India’s gross domestic product (GDP) grew at 4.5% in the July-September quarter (Q2 2019-20), the lowest since March 2013.
Revenue collection, however, picked up in November and touched Rs 1,03,492 crore due to the government-induced stimulus and a spur in demand during the festive season.
Speaking at the 37th GST Council meeting in September. Also, the FFC chairman said there had been GST rate cuts since its inception in July 2017. However, and rarely there had been any increase. However, which upset the time frame for the tax regime to become revenue-neutral, said the two officials.
This resulted in a cluttered rate structure and posed enormous challenges over the compliance and challenges of technology. Therefore, the time has come to go back to the drawing board and rationalize tax rates, the officials said.
