Indian Tax Solution

Simpler GST on cards as tax slabs may merge soon, even as single rate ruled out

As India slowly adapts to the new GST regime, the government is likely to merge 12% and 18% tax slabs soon – at least there has been enough indication for it. Finance Minister Arun Jaitley, on the day of the implementation of the GST on July 1, itself had indicated converging the 12% and 18% tax slab, which is now being reiterated by chief economic adviser Arvind Subramanian.

"We can converge some taxation in the future: 12% and 18% can be converged into one," Finance Minister Arun Jaitley had said on July 1. Later in August, Arun Jaitley, once again, said that the two rates can be clubbed together. Arvind Subramanian told The Economic Times that the government may club the 12% and 18% tax slab as one, while he rejected the idea of single taxation system suggested by the newly-elected Congress President Rahul Gandhi.

According to Arvind Subramanian, there is a possibility that soon India will have a three-slab tax structure: poor man's 0 to 5%, core rate 12% and 18% combined, and the demerit rate 28%. The GST Council, which is headed by Arun Jaitley, brought down tax rate on 178 products from 28% to 18% and pushed down several others in the lower bracket, and decided to bring down compliance burden. Arun Jaitley had hinted at further GST rate cuts in future depending on "revenue buoyancy". He also rejected moving to the single taxation system, saying said it was not fair to put luxury or sin items under the same tax umbrella as food.

The ministers who were part of the GST Council hinted that the Council plans to keep only luxury and sin goods under the 28% slab, and in future, may even move to a two-rate structure.

Currently, the GST regime slots items under four primary tax rate slabs - low rate of 5%, standard rates of 12% and 18%, and high rate of 28%. Other than this, gold and jewellery are taxed at a concessional GST rate of 3%, while rough diamonds are having a 0.25% levy. The items of daily use have been kept tax-free, ie, either at zero tax rate or completely out of the ambit of tax under GST. Apart from this, an additional cess varying for item-to-item is levied - as in case of cigarettes and luxury cars - on sin and luxury items.

Meanwhile, the revenue collected in October was Rs 95,131 crore. and an average revenue shortfall of states has come down to 17.6% from 28.4%, Bihar deputy chief minister Sushil Modi said last week. The government had collected Rs93,141 crore revenue under the GST in September.

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