The upcoming Goods and Services Tax (GST) Council meeting on September 9 will discuss rationalisation of rates on several items but a decision regarding any rate change will be taken in subsequent meetings, Union Finance Minister Nirmala Sitharaman said on Tuesday. A committee of officers will make a presentation on the current status of rates under GST in the Council meeting next month, which would then be shared with the Group of Ministers (GoM) on rate rationalisation for their consideration, Sitharaman said.

“A committee of officers will make a presentation on the current status of rates on items under GST. The discussions will be held in the GST Council meeting, no decision will be taken in this meeting. After this Council meeting, the GoM will meet and discuss further, after which the Council will meet again on this issue,” she said.

Both rationalisation of rates and tweaking of slabs under GST are on the discussion table, the Finance Minister said, adding that the discussions will go item-by-item and make a comparison of the current rates with the revenue neutral rate. The concern of maintaining revenue neutrality has weighed on such discussions of rate changes earlier as any major rate change for items or tax slabs under GST would imply loss of revenue for both states and the Centre. Revenue neutrality is seen as a crucial factor as a study by the Reserve Bank of India (RBI) had earlier shown that while the Chief Economic Advisor’s report had pegged the revenue neutral rate at 15.3 per cent, the weighted average GST rate stood at 14.4 per cent in May 2017, and subsequently dropped to 11.6 per cent by September 2019. Government officials said that now this weighted average GST rate has dropped even lower than the 11.6 per cent level seen earlier.

The GST has five key tax slabs: zero, 5 per cent, 12 per cent, 18 per cent and 28 per cent. A compensation cess, ranging between 1 per cent to 290 per cent, is levied on demerit and luxury goods over and above the topmost rate of 28 per cent. A merger of 5 per cent and 12 per cent slabs or 12 per cent and 18 per cent slabs has been deliberated upon earlier as well but has not been taken up formally for a decision.

The GST Council may also discuss the issue of compensation cess levy, which is at present proposed to be levied till March 2026 for payment of back-to-back loans taken earlier to compensate states under the indirect tax regime. Sitharaman said some states had raised the need to discuss this in previous GST Council meetings as the loan repayment is likely to be completed before March 2026. The future course of the compensation cess levy may be discussed in the GST Council in the upcoming meeting or later, she said.

Last week, the reconstituted GoM on rate rationalisation, headed by Bihar’s Deputy Chief Minister Samrat Chaudhary, had met for the first time and broadly agreed to not make any changes with the existing slabs in the indirect tax regime.

State finance ministers, who participated in the meeting, had also said that the issue of reduction of GST rate for health and life insurance premiums was raised in the meeting of the GoM and it is being reviewed by the fitment committee. GoM members have sought more data on various items after which it will make a detailed presentation on rate rationalisation proposals at the GST Council meeting slated for September 9. The GoM is then expected to meet again at the end of September.

Source: The New Indian Express