Two rate slabs, special tax on sin, luxury goods among suggestions to boost GST mop-up

Desperate times call for desperate measures. The age-old saying is playing out in the current scenario now when the government is receiving a series of suggestions to increase Goods and Services Tax (GST) collections. The muted growth in revenues from GST had led to the GST Council forming a committee of state and central officers to look into ways to augment collections.

According to the report presented by the committee in the 38th GST Council meeting, the government received several suggestions to increase GST revenues. The notable ones include having a two-rate structure with 10 per cent and 20 per cent slabs instead of the five at present, special higher tax on sin and luxury goods and cess on cosmetics, gambling and recreational services.

There were also suggestions such as inflation-indexed rates, rationalisation of exemptions and increase in cess on existing items. The government also received suggestions on tweaking the composition scheme. One suggestion was to increase the composition rate for manufacturers. Currently, manufacturers pay 1 per cent GST under the composition scheme. One of the suggestions was to review the coverage under the composition scheme.

Some stakeholders suggested to move items from 5-12 per cent slab to 12-18 per cent. It was also asked to review if taxes on some goods that had been reduced from 28 per cent to 18 per cent can be again hiked to 28 per cent. The tax on precious metal has been asked to increase from 3 per cent to 5 per cent. They also suggested to tax education and health - both exempted currently - at higher segments.

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Major exempted items other than education and health include house rent/lease, public transport, printed books and newspapers apart from food items such as unbranded cereals, unpacked fruits and vegetables, honey and bread.

Major items in the 5 per cent tax slab are fertilisers, cotton and cotton yarn, branded cereals, edible oil, spices, AC rail travel and economy air travel, etc. Major items in the 12 per cent slab include mobile, ghee/butter, bicycle, tractors, fruit juices, paper and business class air travel, etc.

The committee report says that 18 per cent and 28 per cent slabs account for maximum tax collection (excluding cess). The 18 per cent slab accounts for 61 per cent and the 28 per cent slab comprises 18% of the tax collected including input tax credit (ITC). The 5 per cent and 12 per cent slabs together account for 18 per cent of the tax paid including the ITC.

The report also observed that taxes have been reduced on many goods post GST. It said that goods in the 28 per cent tax slab had pre-GST tax incidence of 31 per cent. Goods such as toothpaste, mineral water and soap that are in the 18 per cent tax slab currently attracted around 30 per cent tax pre-GST.

Since the launch of the GST, rates of over 400 items and 80 services have been slashed by the GST Council. Besides, steps such as increasing the GST threshold from Rs 20 lakh to Rs 40 lakh, hiking composition scheme limit from Rs 75 lakh to Rs 1.5 crore and lowering composition rates from 2 per cent to 1 per cent also had an impact on revenue collections.

According to the committee, all these measures including rate cuts had a revenue impact of Rs 1 lakh crore a year.

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