In its efforts to reduce the compliance burden and higher tax rates, the government is moving towards a three rate Goods and Services Tax (GST) structure. Sources in the Finance Ministry said once the GST Council clears up the 28 per cent slab, there will be a possibility of collapsing the 12 per cent and 18 per cent slabs into one rate.
An official said, “most of the items have been removed from the 28 per cent bracket. There are still some items left such as cement and white goods among others. We are in the process of cleaning up this bracket and once this slab becomes nil, we will take the next step of converging the other two rates of 12 and 18 per cent into one. If we do that, then we have a cleaner and simpler structure. It is very much on the cards. Only the timing remains to be worked out.”
Going forward there would be a three-rate structure, one between zero to 5 per cent, another rate will be of convergence of 12 and 18 per cent and the third will be a demerit rate of 28 per cent. Cement and white goods are not demerited goods, but the government is deliberately ‘going slow’ on those items due to revenue considerations, the official said.
There have been several changes made in the GST rates since its introduction. The last meeting of the GST Council in Guwahati announced reduction in rates of over 178 items and also simpler compliance norms that have sent positive signals to industry. Sushil Modi, Bihar Finance Minister, said, “more rationalisation of rates will happen as and when revenues stabilise under GST and buoyancy improves. The focus of the GST Council now is on simplifying compliance and IT processes”.
However, the GST Council has already cleared an approach paper for items to be considered for rationalisation but it is not binding and the Council can always deviate from the approach paper. Earlier, Union Finance Minister Arun Jaitley said one of the objectives of GST is to aid and assist domestic products and the government does not want to just allow cheap foreign products to come in.