GST standard rates may not be merged any time soon


Clubbing 12% and 18% rates may cause an annual revenue loss of 1 lakh cr: Official

The Revenue Department does not think it would be appropriate even in the near future to merge the two standard rates of Goods & Services Tax (GST) into one rate.

The existing GST regime has multiple rates: 0, 0.25, 1, 3, 5, 12, 18 and 28 per cent. The 12 per cent and 18 per cent rates are known as ‘Standard Rates.’

There has been talk of merging the two rates and having one standard rate of 15 per cent to simplify the GST structure.

Also, it will help blunt the criticism of there being too many rates. (0.25, 1 and 3 are special rates. The 0.25 per cent rate is for uncut diamonds; 1 per cent is for affordable housing and 3 per cent for gold and silver.)

“At this juncture clubbing of the two rates into one rate of 15 per cent might cause a revenue loss of approximately 1 lakh crore annually,” a senior Revenue Department official told BusinessLine. He further added that such a revenue loss is unwarranted at this moment as it would also affect the overall fiscal deficit. The government aims to restrict the deficit to 3.4 per cent of GDP in the current fiscal year.

Lopsided impact

As of now, out of 1,200 plus goods, nearly 42 per cent attract GST at the rate of 18 per cent, while nearly 15 per cent fall within the 12 per cent bracket. This means the proposed rate change will lead to a higher rate on fewer goods and a lower rate on more goods, leading to a revenue loss.

“This exercise can take place once revenue collection stabilises and average monthly collection is more than 1 lakh crore,” the official said.

Since implementation of GST from July 1, 2017, there have been just four instances when the monthly collection crossed 1 lakh crore. For 2018-19, the government aims to get 13.38 lakh crore (CGST+SGST+IGST+Compensation loss) but revised this later to 11.48 lakh crore. Now, for the current fiscal year (2019-20), the aim is 13.71 lakh crore. This means the monthly average collection should be 1.14 lakh crore. The collection in April stood at 1.13 lakh crore.

What the experts think

MS Mani, Partner at Deloitte India, said that with GST collections showing signs of stabilising in recent months, it may be better to for wait for some time before rationalising rates further.

“The initial focus could be on further simplification of procedures on returns, audits and input tax credits,” he said.

Rajat Mohan, Partner, AMRG & Associates, felt that consolidating the twin slabs of 18 per cent and 12 per cent to tax services under a single slab of 15 per cent, as suggested by former Chief Economic Advisor Arvind Subramanian, would lead to an immediate downward spiral in tax collections. “The high volume of transactions in the B2C service segment, such as life insurance, health insurance, construction of commercial shops and offices, accommodation services, food and beverages, social care services etc would pull effective tax contributions down by 3 per cent of the erstwhile contribution, which is expected to be colossal in absolute terms,” said Mohan.

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