The GST Council plans to raise the 5 per cent GST slab to either 7 or 8 or 9 per cent.
With most states on board to raise revenue so they don’t have to depend on the Centre for compensation, the GST Council is expected to adopt a proposal to remove the 5% slab by moving some mass-consumption goods to 3% and the remainder to 8% at its meeting next month.
GST is currently divided into four tiers: 5, 12, 18, and 28 per cent. Furthermore, gold and gold jewellery are subject to a 3% tax. There is also an excluded list of items, including unbranded and individually packaged food, that is not liable to the tax. According to sources, the Council may vote to reduce the list of exempt items by transferring some non-food items on the 3 per cent slab to increase income.
According to sources, talks are on to raise the 5% tax rate to either 7%, 8%, or 9%, with the GST Council, which includes finance ministers from both the federal and state governments, making the ultimate decision.
With the GST compensation scheme about to expire in June, states must become self-sufficient and no longer rely on the federal government to close the revenue gap in GST collection.
Essential commodities are excluded or taxed at the lowest rate under GST, whilst luxury and demerit items are taxed at the highest rate. On top of the highest 28 per cent slab, luxury and sin items are subject to a cess. This levy is used to compensate states for revenue losses as a result of the GST implementation.
The Centre pledged to refund states for five years, till June 2022, and to protect their revenue at a rate of 14% each year over the base year revenue of 2015-16 when the GST was implemented on July 1, 2017.
Over the years, the GST Council has repeatedly given in to the requests of business and industry, lowering tax rates. The number of commodities subject to the maximum 28 per cent tax, for example, has decreased from 228 to less than 35.
However, the centre is against the notion of extending the GST compensation to 5 years but the states seem to realise that it’s the only method to gain higher revenue.
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