In a bid to revamp and streamline the goods and service tax (GST) introduced earlier this year, the Union finance minister Arun Jaitley is planning to bring down the number of items that attract 28% tax, the highest among the four slabs.
The items in the highest slab mainly comprised of goods and services perceived to be not essential or luxury. It included items like tobacco products, washing machines, refrigerators, cement, nutritional drinks and cosmetic surgery. Under the GST dispensation, implemented starting July this year, over 1200 products and services have been fitted into four tax categories – 5, 12, 18 and 28 per cent slabs- based on the principle of keeping the total tax incidence at almost the same level as earlier as well as keeping revenue collection neutral.
Earlier talking at the India Today Conclave in the capital today, Jaitley admitted that some of the items should never have been in the 28% slab and the GST Council in the last 3-4 meetings has slashed rates on over 100 items, thereby bringing them down either from 28% to 18% or from 18% to 12%.
“We have been gradually bringing them down. The whole idea is, as your revenue collections neutralise we must prune it and that’s the pattern in which the Council has so far been functioning. I see that as a future guide as far as the Council is concerned,” Jaitley said at the Conclave.
In its last meeting in October, the GST Council adopted a concept paper that laid down guidelines for changes in rates. The paper had said that no manufactured goods should be given outright exemption as this would hinder the Make in India objective. If States wanted to reduce tax incidence on any item, it was suggest that they opt for direct subsidy transfers to the manufacturer rather than cutting rates.
The concept paper also said that for the 28% bracket, a review should be considered on goods of mass consumption or public interest, intermediate goods, and those predominantly manufactured in the unorganized small and medium scale enterprises. It also suggest that export-related items currently in the 28% bracket should be reviewed, keeping in mind the overall revenue implications. It is expected that several need-based items in the top GST tax bracket could face a review shortly and be considered for rate cuts.
Bringing down the number of items in the top tax bracket will be in line with the recommendations of the chief economic adviser Arvind Subramanian’s report on the GST rate structure where he had said that the 28% category should ideally be limited to very few products.
The next meeting of the GST Council is scheduled later this week on November 10 and it is largely expected that the government may consider lowering tax rates on a host of goods like daily use shampoo and plastic furniture.
Jaitley’s review of the 28% slab follows another set of recommendations made on October 30 to help small traders who found the numerous tax slabs cumbersome to comply with. For enterprises with annual revenue of less than Rs 1.5 crore, the recommendation was for a flat tax of 1% as against four slabs earlier. This recommendation will also come up for discussion on November 10.