GoM may propose for an increase in GST on certain goods and services

A Group of Ministers (GoM) convened by Karnataka Chief Minister Basavraj S Bommai, which began debating GST rate rationalisation issues on Friday, is expected to recommend raising rates on some goods and services to ensure that the Revenue Neutral Rate (RNR) reaches the level it was at the time of GST implementation.

According to sources, a majority of GoM members supported raising tax rates.

“There is a growing sense of urgency about streamlining rates that have been reduced on some goods and services due to various political and electoral pressures.” However, this should not be interpreted as implying that the burden would be passed on to consumers.”

Rates are being simplified

The GoM is understood to have considered a research conducted by the Kerala Ministry of Finance on the implications of lowering the GST rate on approximately 25 commodities and services.

According to the report, the reduction in GST on items such as batteries, chocolates, and vacuum cleaners did not benefit the consumer.

The Ministry investigated the pricing of these 25 commodities immediately after the tariff was reduced and followed up six months later.

“The pricing of these things increased on both instances.” The reduction in tax rates benefited neither the government nor the consumer. “The companies that manufactured these things benefited,” a source added, citing the survey.

According to the study, anti-profiteering organisations should investigate how the lower tax rate aided large corporations.

Indirect taxation

“There are fears that the Centre, in order to keep the RNR, would revert to indirect taxation, which will harm the average man.” The RNR can also be maintained by raising corporate taxes, income taxes, wealth taxes, and instituting an inheritance tax, according to a source.

To avoid income loss for both the Centre and the States, the RNR must be restored to pre-GST levels. As of now, there are four primary rates – 5, 12, 18, and 28% – as well as other unique rates such as 0.25, 1 and 3%.

A proposal was made to combine the rates of 12% and 18% and use a median rate of 15%. For rate rationalisation, various different permutations and combinations were being investigated.

The current GoM is anticipated to finalise the blueprint.

Other points of contention

Other terms of reference for the GoM on rate rationalisation include a review of the supply of products and services exempt from GST in order to broaden the tax base, the elimination of breaks in the ITC (Input Tax Credit) chain, and a review of cases of inverted tariff structure (IDS).

IDS refers to greater duty on inputs and lower duty on outputs, resulting in a higher return to industry, impacting company cash flows and government revenue collections.