The Goods and Services Tax (GST) Council in its next meeting might raise the lowest tax slab to 8 per cent, from 5 per cent, according to a report. As the GST Council looks to raise revenues and do away with states’ dependence on the Centre for compensation, the tax body in its next meeting may look at raising the lowest tax slab to 8 per cent from the current 5 per cent, PTI news agency reported, citing sources. A panel of state finance ministers is likely to submit its report by this month’s end to the Council suggesting various steps to raise revenue, including hiking the lowest slab and rationalising the slab.
Currently, GST is a four-tier structure attracting a tax rate of 5, 12, 18 and 28 per cent. Essential items are either exempted or taxed at the lowest tax slab, while luxury and sin items attract the highest slab. Luxury and sin products attract cess on top of the highest 28 per cent slab. This cess is collected to reimburse states for revenue losses caused by the implementation of the GST.
Raising lowest slab to 8 per cent
According to the report, the GoM is likely to propose raising the 5 per cent slab to 8 per cent, which may yield an additional Rs 1.50 lakh crore annual revenues. As per calculations, a 1 per cent increase in the lowest slab, which mainly includes packaged food items, results in a revenue gain of Rs 50,000 crore annually.
A Smaller Exempted Items List
In addition, the GoM could also propose reducing the number of items which are exempted from GST. Currently, unpackaged and unbranded food and dairy items are exempted from GST. Sources told the news agency that the GST Council is expected to meet later this month or early next month and discuss the report of the GoM and take a view on the revenue position of the states.
GST Compensation Regime Extended Till March 2026
GST compensation regime coming to an end in June has now been further extended to March, 2026. Union Finance Minister Nirmala Sitharaman on Wednesday said the GST compensation cess period has already been extended till March 2026 to enable the Centre to repay loans taken to compensate all states for the year 2020. During an interaction with reporters here, she said, “It’s not just for me to take a call. It’s for the GST council to decide and we have discussed it.”
At the time of GST implementation on July 1, 2017, the Centre had agreed to compensate states for 5 years till June 2022, and protect their revenue at 14 per cent per annum over the base year revenue of 2015-16. However, over this 5-year period due to a reduction in GST on several items, the revenue-neutral rate has come down from 15.3 per cent to 11.6 per cent.
“As the revenue-neutral rate has come down and the states stare at a shortfall of about Rs 1 lakh crore, efforts have to be made to make GST revenue neutral and the only way to do it, is rationalise the tax slab and check evasion,” a source said told PTI.
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