Move on to increase GST rates, cut slabs

New Delhi: The common man has a reason to worry as his household budget may go for a toss if the GST Council meet next week decides to raise the duty slabs. It is expected that the current 5 per cent GST on essential food products and services may be increased to 6 per cent or 8 per cent. Similarly, the 12 per cent tax slab may be raised to 15 per cent. There are also proposals to merge some tax slabs and impose cess on more items to increase government revenue.

At present, the 5 per cent goods and services tax (GST) slab includes essential commodities such as food items, footwear and basic clothing. Key commodities such as tea, coffee, frozen vegetables and medicines also fall in this basic tax slab. Any increase in this slab, not to mention the steep 8 per cent duty being mulled, will burn a deep hole in the common man's pocket.

"With pressure on revenue collection, the GST rates and slabs may be raised during the GST Council meeting on December 18. The council is expected to increase the basic tax rate to 6-8 per cent." a top source told this newspaper.

"Increasing the basic GST rate from the 5 per cent to 6 per is expected to bring an additional revenue of Rs 1,000 crore per month into the government kitty, assuming GST collection of Rs 1 trillion, while raising it to 8 per cent will mean an additional collection of Rs 3,000 crore per month," the source said.

The government's move comes in the backdrop of concern at the Centre and states over the lower-than-expected GST collections and pending compensation to many states. "A group of tax officials from the Centre and states will finalise recommendations for rate rationalisation. It is learnt to have considered various options, including raising rates from 5 per cent to 8 per cent and 12 per cent to 15 per cent," the source added.

However, a detailed framework on rate rationalisation will be discussed during the GST Council meeting and the council is also likely to deliberate on raising the cess on some products.

As of now, there are four slabs under the GST regime - 5, 12, 18 and 28 per cent, while goods and services under the 28 per cent category attract additional cess that ranges between 1 per cent and 25 per cent. "The council can also explore possibility of merger of slabs to bring down the number of slabs to three," sources said, adding that it may revisit the exemption list and explore whether cess can be levied on some services.

Meanwhile, Kerala Finance Minister Thomas Isaac opposed the proposal of tweaking the lower slabs, saying that it is a bizarre proposal. "It will be injustice. I will not accept increasing the tax burden on the poor, rather raise the upper slab, if needed," he said.

"If the 18 per cent slab can go up to 22 per cent or to 25 per cent, it means an additional mop up of Rs 13,000 crore per month," said Isaac.

Bihar Deputy Chief Minister Sushil Modi said raising the 5 per cent slab would not help meet the objective. "Although I would not like to comment on the matter till a final proposal comes, hiking the 5 per cent slab will make little difference. It is touching the 18 per cent slab which may help, but difficult to say if it's feasible," he said.

Punjab has proposed a two-slab formula of clubbing the 5 per cent and 12 per cent slabs, and merging 18 per cent and 28 per cent to simplify the GST rate structure and improve revenues.