GST rates will increase as the council contemplates a major renewal

NEW DELHI: Almost two and a half years after its launch, the GST Council It is expected to discuss a major restructuring to raise the base slab from 5% to 9-10%, while eliminating the 12% rate and moving 243 items in this segment to the 18% band, movements that will increase the tax burden on consumers but can generate about Rs 1 lakh crore of additional income.

In addition to the proposed recalibration of rates, several items currently exempt from taxes, from treatment in expensive private hospitals to accommodation in hotels of less than Rs 1,000 and rents of homes of high value companies, can be included in the scope of the tax , familiar sources with deliberations between the Center and the states, he said.

items that may move to higher slabitems that may move to higher slab

Some of the suggestions have been made by state government officials, interested in ensuring that there is clarity about compensation, which has been affected by lower charges than expected. The emerging opinion is that income-generating measures are essential to meet the state's compensation requirements.

A reduction in tax rates on hundreds of items from GST It started in July 2017, which meant that the effective tax rate was reduced from 14.4% to 11.6%, which resulted in an annual income impact of around Rs 2 lakh crore. Compared to the 15.3% neutral revenue rate proposed by a committee headed by the former chief economic advisor Arvind Subramanian , the hit could be as much as Rs 2.5 lakh crore.

An economic slowdown has accentuated the problem, affecting the tax collection of the Center and the states and creating a situation in which it is estimated that the monthly compensation burden in the Center will increase to around Rs 13,750 million this year, compared to a third of that in July. March 2017-18. An official estimate suggested that next year, the monthly compensation bill can exceed Rs 20,000 million, since the Center must compensate the states in case the revenue growth is less than 14%.

Faced with a difficult decision, the Center is expected to set the stage and the state elections. It is also argued that while prices will rise, moderate inflation should be taken into account in recent years, since the real increase is likely not to be large for several items. Items in the zero tax category are not being touched. Changing the lower slab can contribute more to increasing revenues.

Though the GST Council secretariat has asked states to review the compensation cess, officials believe it may be tough to increase the levy on products like cars and an expansion of the list will not result in significant gains.

As a result, they see that the current situation is necessary to increase taxes. Reworked rates can only result in an increase in effectiveness GST rate to around 12.5-12.75%, a suggested estimate, although experts warned that there could be an inflationary impact if the tax increases significantly.

However, government officials suggested that the increase may not have a significant impact on general inflation, which was driven by rising food prices in recent months, while manufactured products registered a moderate increase.

“Businesses would prefer stability in GST rate s and procedures as every change made by the government requires them to recalibrate their internal processes and systems,” said M S Mani, a partner at consulting firm Deloitte .

Government officials, however, argued that the proposed changes, which are to be discussed in detail with the Center next week, will serve a twin purpose - generate higher resources and also move to a three-rate structure - setting the stage for a two- slab GST in the years ahead.