The group of ministers (GoM) is likely to meet this week to make a final decision on tariffs and back up its recommendations, people familiar with the deliberations said. The GST council is expected to meet early next month to discuss the report and the states’ revenue status.
The council had instituted the GoM on tariff rationalization during its meeting in September 2021 in Lucknow.
The group was asked to review exempt goods to expand the tax base, propose changes to simplify the rate structure and gather the necessary resources.
The GST has a four-tier structure consisting of 5%, 12%, 18%, and 28% rates. In addition, there are special tariffs for some goods, such as precious metals, which makes the regime complex. When GST was rolled out in July 2017, the revenue-neutral rate was approximately 15.5%.
Income neutral rate is the rate at which there is no loss of tax revenue for states or the center after switching to GST. That peg has since fallen to about 11.6% due to exemptions and reductions in tariffs on many goods.
Raising the GST threshold rate from 5% to 8% could offset this by bringing in additional annual revenues of about Rs 1.5 lakh crore. But most members believe the timing may not be right given inflation concerns, sources said. In addition, the 5% plate contains a lot of supplies, which can get expensive if the rate is increased to 8%.
One of the individuals said that some GoM members instead favored a merger of the 12% and 18% plate into a common 15% levy, along with raising the tax on so-called sin goods. “Most members agreed that a rate hike is imminent, but feared (the) timing,” an official told ET.
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