The Union Finance Minister’s much-anticipated meeting with the Group of Ministers (GoM) from various states took place on Wednesday, which comprised explaining to them the requirement of a restructuring of the eight-year-old GST regime.
An announcement about the Centre’s decision to make sweeping reforms in the GST regime was made by Prime Minister Narendra Modi during his Independence Day speech this past week. The PM said the “next generation” reforms will be rolled out by Diwali, and that prices of various products will be reduced as a result of the reforms.
On Wednesday, finance minister Nirmala Sitharaman, spent 20 minutes presenting to the GoMs her government’s plans for putting in place reforms that include slashing tax slabs from the current four-tier structure to a two-tier structure to boost consumption, encourage domestic production of goods and help in ease of doing business.
The GoMs on rate rationalisation, insurance taxation and compensation cess will next be engaged in deliberations over the next two days on the Centre’s proposal of removing the 12 per cent and 28 per cent tax slabs.
Also Read: FM to present GST rate cut proposal on Aug 20
GST is currently levied at 5, 12, 18, and 28 per cent, in which food and essentials are either at nil or taxed at 5 per cent. On the other hand, luxury and demerit goods are in the 28 per cent slab, with a cess added on top of it. If the 12 and 28 per cent tax slabs get removed, luxury or ‘sin’ goods will fall in the 18 per cent slab with a special 40 per cent rate imposed on them.
While the GoMs on compensation cess was set up to decide on the future of compensation cess post the loan repayment period, the GoM on insurance was deliberating on reducing tax rates on health and life insurance premium.
The rate rationalisation GoM was mandated to suggest changes in slabs and rates and also remove duty inversion faced by certain sectors.
The GoM on GST rate rationalisation is scheduled to meet again on August 21.
Earlier, an SBI Research report said the GST rejig, if implemented, could result in revenue loss of about ₹85,000 crore a year. For the current fiscal, the loss to revenue is estimated at ₹45,000 crore, assuming the new tax rates are implemented from October 1.
The report also stated that the effective weighted average GST rate came down from 14.4 per cent at the time of inception to 11.6 per cent in September 2019. Given the current rationalisation of rates, the effective weighted average GST rate may be 9.5 per cent.
Once approved by the GoMs, the proposal will be placed before the GST Council, comprising ministers from Centre and all states, in its meeting next month.
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