Fitment committee proposes increase in GST slab of 5% to 7% and 18% to 20%
In what could be a tough decision for the future of the Goods and Services Tax (GST) regime in the country, which the GST Council will have to take, sources have told CNBC-TV18 that the GST Council nominated Fitment Committee has sent a detailed proposal to GST Council nominated Group of Ministers on rate rationalization to consider raising GST slab of 5 percent to 7 percent and 18 percent to 20 percent.
The Group of Ministers will also examine the "feasibility of merging 12 percent and 18 percent to one single slab at 17 percent, hiking compensation tax rate to be raised from 1 percent to 1.5 percent and increasing the taxes on precious metal (gold/silver) from 3 percent to 5 percent," sources added.
The Group of Ministers on rate rationalization has already met twice and a final meeting is scheduled to take place on November 27 to discuss the rate slabs and rate structure.
Sources further said the Group of Ministers on rate rationalization after doing a careful consideration of the proposals will prepare a draft report, which will be circulated to all Group of Ministers members and only after a final approval the report will be submitted to the GST Council for formal consideration, sources said.
The Group of Ministers is led by Karnataka chief minister Basavaraj S. Bommai. It has a total of seven members including members of the GST Council – finance minister West Bengal, Kerala finance minister K.N. Balagopal, members from Goa, Bihar, Uttar Pradesh and Rajasthan. Sources said GST Council is likely to now meet in December. However, a formal date and notification are yet to come.
The Group of Ministers is also of a view that "items of public consumption and sensitive public perception is imp for careful considerations during rate rationalization exercise, Group of Ministers is also in favour of withdrawing exemptions and levying GST to avoid tax evasion and to continue exemptions only where it is necessary," sources added.
Sources further shared that the "Group of Ministers is clear that the timing of the implementation of rationalized rates requires careful consideration, also the call will be considered noting that two member states of the Group of Ministers are poll-bound – Goa and Uttar Pradesh, thus the decision has to be kept in mind the political repercussions of the proposal."
The Group of Ministers is also of a view that "reduction of 28 percent rate to 18 percent cannot commensurate price reduction, thus the purpose of rate rejig has to be fulfilled," sources added.
On the items, sources shared that rates of "agri related items like tractors, agri related machinery, Aggarbati/dhoop, Lantern/ petromax, Utensils, are unlikely to be tinkered," sources said.
Also, the Group of Ministers wants to continue with the exemptions extended to “Hearing aids and parts, slate/ slate pencil/ chalk, input services to educational institutes, Bread, Neera/toddy, storage and fumigation of agri produce would also continue,” sources shared.
Rather the sectors or items where the Group of Ministers could give a direction to remove exemptions and levying GST could be, "coffee beans, not roasted to be taxed at 5 percent under RCM, unprocessed green leaves of tea to be taxed at 5 percent under RCM, cheques, lose or in books to be taxed at 18 percent," sources said.
Group of Ministers could also give a go-ahead to reduce exemption via a reduced rate of 5 percent to goods related to petroleum/ coal bed methane to be revised to 12 percent, to take away the exemption of reduced rate of 5 percent on e-waste to be revised to 18 percent," sources added.
For the hotel industry to avoid tax evasion, the Group of Ministers could consider taking away the "exemption or the differential rate for less than Rs 1,000 per unit per day from Nil and could decide to levy a GST of 12 percent," sources added.
Another proposal of the Group of Ministers is also to correct the inverted duty structure wherever it is hurting the domestic industry.
To watch out for is what is the final stand the Group of Ministers takes and how does the GST Council react to it, as any decision taken by the Group of Ministers is not the final word until the council approves it.