GST overhaul likely soon; 3 tax slabs, exemption cuts, rate hikes on the cards
The GST restructuring, which which will be rolled out in a phased manner, may cut down tax slabs to three from the current four slabs of 5%, 12%, 18%, and 28%. The textile sector may see a rate hike, which was due in January 2022.
The GST regime could get the most comprehensive makeover since it was introduced in 2017. The revision may simplify the rate structure and seek to lift revenue for states. The GST compensation given to states will end in June. The restructuring, which will be implemented in phases, may cut down tax exemptions, introduce only three major tax slabs and remove anomalies from taxing raw materials and intermediates, reported Live Mint.
The Centre and states may implement a proposed structural reform in phases to minimise the impact of the tax rate changes on consumption.
According to the Economic Times, a group of ministers (GoM) led by Karnataka Chief Minister Basavaraj Bommai is likely to meet soon to finalise the restructuring recommendations. The final recommendations will be taken up in upcoming GST council meeting.
The revisions may include the implementation of tax rate changes needed in the textile industry that will correct the inverted duty structure. Several items in the textile and apparel sector were deferred a rate hike from 5 percent to 12 percent by the GST council on December 31. These included woven fabrics of cotton, silk, and wool, coir mats, apparel, and clothing accessories worth a sale value of Rs 1,000. The rate hike was to take effect from January 1, 2022.
As the current GST regime completes five years in July, the compensation given to states will come to an end. This is a major concern for states, but it favours the structural changes in GST. The expiring compensation may leave a gap in state budgets, particularly of large state economies. States will need to find new ways of raising revenue receipts by removing exemptions and reducing the number of slabs.
“The main concern of states is the expiry of GST compensation in June. Even though the cess collection has been extended, it will only raise adequate resources for paying back the loans already raised. The only way out is to augment revenue from GST, which can be done in one of two ways. It can be done administratively, or you make your rate structure efficient, that is, remove exemptions, cut duty inversions, and reduce the number of slabs,” an official told Live Mint.
According to the official, the structural reform is expected to happen in sequential phases. The government has already corrected many of the duty inversions but there is a limit to how much revenue augmentation can be done administratively.
He said, “Eventually, you have to fix the rate structure. The group of ministers is likely to come out with a road map. They may not want to do everything in one go. It will be phased. But it must happen. How they sequence, we do not know yet, but there is this realisation that they must do it now. There is no escape.”
Policymakers and experts are optimistic about the restructuring. They believe cutting down GST rate slabs will help businesses.
“As we move towards the fifth year of GST, it would be very interesting to see if the rate rationalisation committee comes with a recommendation of merging rate slabs so that there are just three rates. This would make it easier for businesses, especially small and medium enterprises. It is also essential to focus on simplifying the compliance process for service providers who have been grappling with multiple-state returns and audit notices,” M.S. Mani, partner at Deloitte India told Live Mint.
According to tax experts, GST collections currently are showing an encouraging trend. Thus, this may be the right time to consider simplifying the rate structure.
According to Sapra, the pruning of the exemption list can widen the GST base, which will increase revenue and keep overall rates at a reasonable level.
SOURCE: CNBCTV18
https://www.cnbctv18.com/finance/gst-overhaul-likely-soon-3-tax-slabs-exemption-cuts-rate-hikes-on-the-cards-12514552.htm
