NEW DELHI: After reducing rates of about 90 items in the last GST council meet, the government is planning to go for further simplification of tax rates by merge the GST slab of 12 per cent and 18 per cent to 15 per cent in November and thus having only three tax slabs.
“Now that GST has finally stabilised, there will be further rationalisation. The target is to reduce the tax slab to three. There were recommendation about removing 28 per cent slab, but at this point of time it is not feasible. So the idea is to merge the 12 per cent and 18 per cent slab. There will be more clarity on this when the council meet next time,” a senior Finance Ministry official told TNIE.
Currently the GST council has four tax slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent under GST. Apart from that the tax on gold is kept at 3 per cent and rough precious and semi-precious stones that are placed at a special rate of 0.25 per cent under GST.
The idea, is not new. Many experts including Chief Economic Advisor Arvind Subramanian has also advised to have fewer tax slabs. Earlier this month Prime Minister Narendra Modi had rejected the proposal of one tax slab, saying that “milk and Mercedes cannot be taxed at the same rate”.
Later on Finance Secretary Hasmukh Adhia in his various media interaction on one year of GST had said that moving forward there will be fewer tax slabs.
According to the official the announcement is likely to happen in the third quarter.
“There is already reduction of rates on many items. So the ministry will be assessing its impact on the revenue for at least a quarter. More likely it will be done around third quarter by November,” the official said, adding that there will be no impact on revenue.
The estimate revenue loss from the most recent tax cut is expected to be around Rs 15,000 crore, however government said the move will lead to better compliance and increase in demand would lead to revenue buoyancy which would offset the loss.
According to rating agency Moody’s, the fluctuating tax rates create uncertainty in revenue flow.
“Although the proportion of revenue loss is small, the vacillation in tax rates creates uncertainty around government revenue and comes amid persistent upside risks to its expenditures,” Moody's said in a statement released on Monday.