Reportedly, the GST Council, the apex policy making body under the new indirect tax regime in India is all set to trim the list of items in the highest slabs of 28% by shifting some of them for common use and also this will reduce the tax burden of products made predominantly by small and medium enterprises (SMEs) to a lower tax slab.
The rate fitment committee, which comprises tax officials of the central and state governments, is tasked with evolving a principle and a subsequent methodology to determine rates for various supplies under GST.
The GST rate fitment committee, intensely untangle the list of items in the highest slab to identify such items.
The Council wants to address the public perception of high tax rates on certain items of common use as well as give further relief to SMEs, especially which are labour intensive.
The revenue department follows the thumb rule that among the population 80% of the taxpayers contribute only 20% of the tax revenue, while the small part of the population accounts the lion’s share of tax proceedings.
According to data available from the ministry of micro, small and medium enterprises, India gives shelter to around 56 million SMEs. Besides, SMEs contribute only about 5% to the total indirect tax revenue. Hence giving relief to them may not hit revenue collection of our country. This mainly focuses on reduce the pain not to dilute the GST structure.
Another challenge faced by the GST council uniformity in tax rate irrespective of their sales volume. The same product may be manufactured by the large industry players as well as SMEs. The rate cut will affect the revenue receipts of bigger players too that really doesn’t need them.
The official added that the eventual goal is to retain only so-called sin goods such as cigarettes, the consumption of which the state wants to discourage, in the highest tax slab. The officials reported that the trim of such item in the highest slab may be a gradual exercise as the GST Council has to also take into account revenue considerations as tax evasion which is common in the country.
The many items got into the list of the highest slab of 28%at the time of listing items in various slab rates as the effective tax burden on them, including central excise and state VAT came in the range of 23-25%.
The GST council had already shifted many items from this list to lower slabs. On 6th October council meeting had reported that item such as stones other than marble and granite, stationery items such as paper clips, poster colours, some diesel engine parts and parts of pumps from 28% to lower slabs.
The GST Council chaired by finance minister Arun Jaitley will meet in Guwahati, Assam on 9 and 10 November to consider further changing the liberal quarterly tax filing scheme called composition scheme meant for SMEs.
