PMO greenlights GST revamp; All eyes on council
GST
) framework, setting the stage for the first major overhaul of the levy rolled out eight years ago, people familiar with the development said.
A proposal in this regard may be moved for the consideration of the
GST Council
, the apex decision-making body for the indirect tax, at its upcoming meeting in August after the monsoon session of parliament.
The
finance ministry
will reach out to states to build a political consensus on taking the reforms forward. It has already begun inter-ministerial consultations with key stakeholder departments on the proposed move, said the people cited.
The revamp will cover both slab changes and procedural simplification to give relief to consumers as well as businesses, they said. A ministerial panel has been mandated by the GST Council to look at the
rate rationalisation
but it has made little headway.
Industry has over the past few months made a strong case to the government for a recast of the GST framework including rates, slabs and procedures, while flagging numerous pain points.
Fewer Slabs Proposed
Lawmakers across party lines have also highlighted issues related to GST and the need to address them. GST currently has five key slabs — nil, 5%, 12%, 18%, 28% — and two — 0.25% and 3% — for bullion.
The 5% slab has about 21% of all goods under GST. The 12% slab has 19% of items, while the 18% slab has 44% of items. The highest rate of 28% covers 3% of total goods.
A key proposal being examined is scrapping the 12% slab and moving items to the 5% or 18% slabs.
Detailed discussions have been held at the highest level in the government and policymakers are of the view that a simplified GST regime could give a further boost to the economy, said one of the persons.
The time is opportune for the recast with the tax structure stabilising and macroeconomic fundamentals being in robust health, he said. Given that free trade agreements with advanced economies are on the cards, the government is keen to ensure that local industry does not face any constraints in scaling up to take advantage of the accords. A revamp of the income tax law is already imminent with the bill slated for the monsoon session.
A compensation cess is levied on some so-called sin goods, including cigarettes and automobiles, in the top 28% slab, introduced to compensate states for any possible revenue loss due to GST transition for five years until June 2022. The cess was extended until March 31, 2026, to repay the interest and principal on the ₹2.69 lakh crore that the Centre had borrowed on behalf of states during the Covid period to meet the deficit in the cess fund.
A separate ministerial panel has been tasked by the GST Council to look at the use of the surplus in the cess fund and the way ahead on that front.
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