Home / Economy / GST Council plans to raise 5% tax slab to 8% : Report

The GST Council in its next meeting might raise the lowest tax slab to 8%, from 5%, according to a report by the PTI news agency, citing sources.  A panel of state finance ministers is likely to submit its report by this month end to the Council suggesting various steps to raise revenue, including hiking the lowest slab and rationalising the slab.

At present, GST is a four-tier structure attracting a tax rate of 5%, 12%, 18% and 28%, respectively.

Essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury and sin goods attract cess on top of the highest 28% slab. This cess collection is used to compensate states for the revenue loss due to GST rollout.

The agency said that the increase in tax slab from 5% to 8% may yield an additional 1.50 lakh crore annual revenues. As per calculations, a 1% increase in the lowest slab, which mainly includes packaged food items, results in a revenue gain of 50,000 crore annually.

Further, the Group of Ministers is looking to create GST a 3-tier structure with revision of rates at 8%, 18%, and 28%, respectively.

If the proposal comes through, all the goods and services which are currently taxed at 12%, will move to an 18% slab. Besides, the ministers are also looking to add more items under the various tax slabs and remove the items exempted from GST. Currently, unpackaged and unbranded food and dairy items are exempted from GST.

With the GST compensation regime coming to an end in June, it is imperative that states become self-sufficient and not depend on the Centre for bridging the revenue gap in GST collection.

At the time of GST implementation on July 1, 2017, the Centre had agreed to compensate states for 5 years till June 2022, and protect their revenue at 14% per annum over the base year revenue of 2015-16.

However, over these 5 years due to a reduction in GST on several items, the revenue-neutral rate has come down from 15.3% to 11.6%.

"As the revenue neutral rate has come down and the states stare at a shortfall of about 1 lakh crore, efforts have to be made to make GST revenue neutral and the only way to do it, is rationalise the tax slab and check evasion," a source said.

The GST Council over the years has often succumbed to the demands of the trade and industry and lowered tax rates. For example, the number of goods attracting the highest 28% tax came down from 228 to less than 35.

(With PTI inputs)



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