The next Goods and Services Tax (GST) Council meeting in March will likely take up rationalising tax rates and mergers of multiple slabs to bring them close to being revenue-neutral and make the indirect tax regime simpler.
The meeting, whose date is yet to be set, will come at a time when the 15th Finance Commission has recommended merging the 12 and 18 percent tax rates. On Wednesday, Prime Minister Narendra Modi expressed the government’s resolve to bring natural gas under GST.
However, officials said any such proposal depended on the approval of the states because some of them including Andhra Pradesh are opposed to the idea.
“The next GST Council meeting will take place in March. We will discuss with the Council members and try to take up the issue of slab mergers and correcting the inverted duty structure in the meeting,” said a senior Central Board of Indirect Taxes and Customs (CBIC) official.
Besides the merger of the 12 percent and 18 percent slabs into a standard rate, the 15th Finance Commission, headed by N K Singh, has suggested rationalising GST into a three-rate structure, comprising a 5 percent merit rate and 28-30 percent de-merit rate. “We realise that our GST rates are lower than the revenue-neutral rate. The Council will take a final call on what the rationalised slabs should be. The aim will be to make the structure clean, besides improving revenues. The potential of monthly GST revenue collection is Rs. 2 trillion,” said the official.
GST revenues touched a record high of Rs. 1.19 trillion in January and Rs. 1.15 trillion in December on the back of improved economic activities and enforcement.
In the view of the 15th Finance Commission, the effective tax rate under GST stands at 11.8 percent according to the International Monetary Fund and 11.6 percent according to the Reserve Bank of India.
These rates are considerably lower than 14 percent, the average revenue neutral rate (RNR) required for a smooth transition from the value-added tax regime without any revenue loss.
While GST’s potential is to generate revenue at 7.1 percent of GDP, at present it is 5.1 percent, which translates into a revenue loss of Rs. 4 trillion, the Commission report notes.