Finance Minister Nirmala Sitharaman on Wednesday presented comprehensive reforms in the GST system to a Group of Ministers (GoMs) from states. She said that the government’s plans for sweeping reforms in the GST regime involve slashing tax rates and easing the compliance burden for businesses. There are currently four slabs of GST: 5, 12, 18, and 28 per cent. While essential items and food are either at nil or 5 per cent rate, luxury and demerit goods are in 28 per cent slab, with a cess on top of it.
According to the proposed reforms, the four slabs will be reduced to two, and tax will be levied at 5 and 18 per cent rates. A special 40 per cent rate has been proposed on 5-7 items, including sin goods.
The GoMs on rate rationalisation, insurance taxation, and compensation cess will, over two days, deliberate on the Centre’s ‘next-gen’ GST reforms.
Next GoM on August 21
The finance minister’s address to the GoMs was for about 20 minutes, during which she elaborated on the Centre’s proposal, news agency PTI quoted a source as saying.
The GoMÂ on compensation cess was set up to decide on the future of compensation cess post the loan repayment period. Besides, the GoM on insurance was deliberating on reducing tax rates on health and life insurance premiums.
The rate rationalisation GoM was mandated to suggest changes in slabs and rates, and also remove the duty inversion faced by certain sectors. The GoM on GST rate rationalisation is scheduled to meet again on August 21.
SBI Research Report
According to an SBI Research report, the new GST reforms, if implemented, could result in a revenue loss of approximately Rs 85,000 crore per year.
For the current fiscal year, the revenue loss is estimated at Rs 45,000 crore, assuming the new tax rates are implemented from October 1.
