The GST Council is likely to push for raising the lowest tax slab to 8 per cent from 5 per cent currently keeping the revenue for the states in mind and reducing their dependence on the Centre for compensation. A panel of state finance ministers is about to submit its report by this month in this regard.
The GST rates have a four-tier structure, that is 5, 12, 18, and 28 per cent rates. luxury and demerit items are at the highest slab, while essential items are either exempted or taxed at the lowest slab. Besides, luxury and sin goods also attract cess, apart from the highest 28 per cent slab, and this collection is used to compensate states for the revenue loss.
The Council, chaired by Union Finance Minister Nirmala Sitharaman, along with her state counterparts, had set up a panel of state ministers last year, led by Karnataka Chief Minister Basavaraj Bommai, to suggest ways to review the state of revenues and improve it further by rationalizing tax rates and correcting anomalies in tax rates.
When the GST regime was introduced on 1st July in the year 2017 and at that time the centre has agreed to compensate for five years, that is till June 2022 and this was taken into consideration for five states only. This was to protect their revenues at 14 per cent per annum. During the five-year period, a change has been observed due to a reduction in the GST rates on a few items and so the revenue-neutral rate has also reduced from 15.3 per cent to 11.6 per cent.
Now that the time period is about to end it is expected that these five states should now become self-sufficient and not rely on the Centre for filling their gaps for the revenue in GST collections of the state. The GST council will be holding a meeting again later this month or next month to discuss and decide the revenue status of all these states through the report of the GoM. The panel is expected to increase an additional Rs 1.50 lakh crore in annual revenues.
The items included under the 5 per cent rate are:
a.) Important Goods
Food products like Edible oil, spices, tea-coffee, sugar, sweets, cashews, ice.
Life-saving drugs like insulin-medicine, medals
Walking Sticks or accessories for specially-abled people
Appliances, Biogas, compost, incense sticks; Coal, fly ash blocks, marble debris, matte floor covering
Windmill based factories or windmills, natural cork
b.) Transportation
Motor cab fares without fuel costs
A.C. Service of vehicles as well as taxis
Includes air transport for pilgrimage, also chartered flight
Aircraft lease
Tour operating service
c.) Miscellaneous
Print media advertising space
Employment in Newspaper Printing
Shipping out of the country
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