The GST Council nominated Group of Ministers (GoM) on rate rationalisation is likely to propose rate rejig on several items, including packaged drinking water of more than 20 litres, exercise books, expensive shoes and watches etc which could generate additional revenue surplus of ₹22,000 crore, sources privy to the developments told CNBC-TV18.
In its meeting on Saturday (October 19) in New Delhi, “GoM rate Rationalisation discussed several proposals and is considering rework rates by reducing rates on common use items, hiking rates on items which are used less or should be termed as luxury and sin goods,” sources told CNBC-TV18.
According to sources, “The GoM on GST rate rationalisation on Saturday decided to lower tax rates on 20 litres and above packaged drinking water bottles from current 18% to 5%, bicycles of less than ₹10,000 to 5% and exercise notebook to 5%.”
“GoM is likely to hike rates on items such as high-end wristwatches (₹25,000 and above) and shoes (₹15,000 and above) from 18% to 28%,” sources said.
It is understood that the rate adjustments are likely to yield a revenue surplus of ₹22,000 crore, which will help in improving GST collections and recover from losses which are likely to be incurred from proposed relaxations for the life and health insurance sectors, sources said.
The proposed rejig includes both rate reductions and hikes on a variety of items, according to multiple people familiar with the development.
In its previous meeting, the GoM on Rate rationalisation discussed tax rate tweaks on over 100 items, including lowering taxes on certain goods from 12 to 5% to give relief to the common man.
There were some items in the 18% slab like hair dryers, hair curlers, and beauty or make-up preparations which the GoM had discussed could be shifted back to the 28% slab.
GoM on rate Rationalisation is a 6-member panel under the chairmanship of Samrat Chaudhary, Deputy CM of Bihar. It includes other states — Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Services Minister Gajendra Singh, Karnataka Revenue Minister Krishna Byre Gowda and Kerala Finance Minister K N Balagopal.
Currently, Goods and Services Tax (GST) is a four-tier tax structure with slabs at 5, 12, 18 and 28%. Under GST essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury and sin goods attract cess on top of the highest 28% slab.
The average GST rate has fallen below the revenue-neutral rate of 15.3% because of this the council asked GoM to consider rate rationalisation exercises to ensure healthy GST collections and reduce the tax incidence on common people.