GST rates’ rationalisation back on the table

New Delhi: Finance Minister Nirmala Sitharaman with Revenue Secretary Sanjay Malhotra and others during a media briefing regarding the outcome of the 52nd Goods and Services Tax (GST) Council Meeting, in New Delhi, Saturday, Oct. 7, 2023. (PTI Photo/Manvender Vashist Lav)(PTI10_07_2023_000427A)
| Photo Credit: Manvender Vashist Lav

In a clear signal that the GST rate rationalisation exercise is back on the Centre’s agenda after being in deep freeze, the government has reconstituted the ministerial group of the GST Council that was tasked with recommending the simplification of the complex tax structure and a rejig of its multiple rates.

The group of ministers (GoM) on GST rate rationalisation, that was headed by former Karnataka CM Basavaraj Bommai since its formation in 2021, had been in suspended animation since the BJP’s loss in the State’s assembly polls this May. Top revenue officials had indicated in early 2023 that the GST rates’ rejig and simplification, long-awaited by the industry, was off the table for a while.

Karnataka’s revenue minister Krishna Byre Gowda has been included in the reconstituted ministerial group, but the convenor’s role for the seven-member GoM has now been assigned to Uttar Pradesh Finance Minister Suresh Kumar Khanna.

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While there are four main GST rate slabs of 5%, 12%, 18% and 28%, there are about a dozen different rates in practice, while some goods attract a zero rate. This is further complicated as some items whose tax rates depend on their packaging, like specified food products, or selling prices, for instance, in the case of footwear and hotel rooms.

Tax experts and industry captains have been urging the government to restart the stalled rate rationalisation plan, especially as GST revenues have stabilised at a healthy ₹1.6 lakh crore-plus level in recent months.

“I think the ministerial group’s reconstitution indicates that the GST rate restructuring and simplification agenda are back on policy makers’ radar. Too many tax rates lead to tremendous compliance-related problems,” said Sacchidananda Mukherjee, professor at the National Institute of Public Finance and Policy.

“The government also understands the need to simplify the rate structure so that price-based tax setting goes away and the multiple rates are reduced for ease of tax compliance for industry as well as the Revenue Department, while giving investors more certainty,” he averred.

The GoM, whose terms of reference remain unchanged, may also make recommendations on the future of the GST Compensation Cess. At its last meeting in October, the GST Council initiated parleys on a “perspective plan” to impose a cess or surcharge on top of GST levies after March 2026, when the GST Compensation Cess is due to expire.

Last week, Confederation of Indian Industry president R Dinesh told The Hindu that it is time to simplify the GST rates to a three-slab structure to make it easier to do business and reduce litigations arising from classification disputes. He also called for a review of the GST Compensation Cess.

“The GoM shall review the current tax slab rates and recommend changes in the same as may be needed to garner required resources (and) review the current rate slab structure of GST, including special rates, and recommend rationalisation measures, including merger of tax rate slabs, required for a simpler rate structure in GST,” as per its terms of reference.

The GST Council had, in June 2022, accepted some of the GoM’s recommendations to withdraw exemptions and concessional rates on several items. At the time, Finance Minister Nirmala Sitharaman had said the ministerial panel had been granted three more months to recommend the larger overhaul of GST rates.

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