GST Council Likely to Replace 5% Rate With New 3%, 8% Slabs

As a way to raise revenue for both the states and the central government, the GST Council is expected to consider a proposal to discard the 5 per cent slab in its next 47th GST council meeting scheduled in May 2022. If that happens, the existing items in the 5 per cent slab will be moved to either 3 per cent or 8 per cent slabs accordingly.

At present, there are four slabs under the GST system – 5, 12, 18 and 28 per cent. In addition, a 3 per cent tax rate is applicable to gold and gold jewellery. Other items, including unpacked food items, etc. are exempted from the GST levy.

According to sources, the government may consider shifting some exempt non-food items to a 3 per cent slab and start levying tax on them in order to increase revenue. Some products of mass consumption that are under the 5 per cent slab currently will be likely moved to the 3 per cent slab.

It is also possible that the current 5 per cent slab may be replaced by a new 7 or 8 or 9 per cent GST slab rate. According to an estimate, every 1 per cent increase in the tax slab will increase the government’s revenue by up to Rs 50,000 annually.

According to sources, most of the 5% slab items will most likely be placed in a new 8 per cent GST slab. However, the Council may consider reducing tax rates on essential products down to 3%.

At the time of the launch of GST, the central government had proposed to compensate states for any loss of revenue due to the GST rollout for up to five years. The cess levied on luxury goods was reportedly being used for the purpose.

However, now, as the GST regime is set to complete its five years this June, the compensation scheme is also coming to an end and states are expected to become self-reliant by now in order to fulfil their revenue needs. The central government has reportedly no plans to further extend the compensation scheme.

The state ministers’ panel set up by the GST Council last year for coming up with ways to increase revenue through a change in tax rates is likely to propose its recommendations by next month, which will be presented before the Council and will be discussed in the upcoming 47th GST meeting.

When planning to increase revenue for the government, the Council will also have to consider not putting an extra tax burden on crucial supplies. However, they seem to have no option but to increase tax on at least some products in order to raise states’ revenues.