GST Council for hiking rates of 143 items; seeks state’s feedback

The GST Council, the governing body for the indirect tax regime, has sought input from states on raising rates on 143 products as part of a proposed rate rationalisation under the Goods and Services Tax (GST) regime to boost revenues.

According to sources, these items include papad, gur (jaggery), power banks, watches, suitcases, handbags, perfumes/deodorants, colour TV sets (below 32 inches), chocolates, chewing gums, walnuts, custard powder, non-alcoholic beverages, ceramic sinks, wash basins, goggles, frames for spectacles/goggles, goggles, frames for spectacles/goggles, and leather apparel and clothing accessories.

92 percent of these 143 goods are planned to be moved from the 18 percent tax bracket to the top 28 percent bracket.

Many of these planned rate hikes are a reversal of the Council's rate-cut decisions from November 2017 and December 2018, which were made in the run-up to the 2019 general elections.

Perfumes, leather garments and accessories, chocolates, cocoa powder, beauty or make-up preparations, pyrotechnics, plastic floor coverings, lamps, sound recording apparatus, and armoured tanks had their rates reduced in November 2017 in Guwahati, but are currently scheduled to be raised again.

Similarly, in the December 2018 meeting, GST rates on items such as colour TV sets and monitors (below 32 inches), digital and video camera recorders, and power banks were decreased, but this may now be changed.

GST rates for goods like papad and gur (jaggery) may rise from zero to five percent. Leather apparel and accessories, wristwatches, razors, perfumes, pre-shave/after-shave preparations, dental floss, chocolates, waffles, cocoa powder, coffee extracts and concentrates, non-alcoholic beverages, handbags/shopping bags, as well as house construction items such as ceramic sinks, wash basins, plywood, doors, windows, and electrical apparatus (switches, sockets, and so on) may see the GST rate raised to 28 percent from 18 percent.

The GST rate for walnuts could be raised to 12% from 5%, for custard powder to 18% from 5%, and for wooden table and cookware to 18% from 12%.

In a meeting in Guwahati in 2017, the highest GST bracket was lowered by 75%, with only 50 products remaining in the 28% slab and 178 items removed from the list of 228 items, as well as a rate reduction for restaurants. The revenue loss from these measures was estimated to be over Rs 20,000 crore at the time.

Within a year of the GST's implementation in July 2017, the GST Council decreased rates for one out of every four commodities. The GST rate decreases on around 350 products out of 1,211 total items in the five major categories of zero, 5%, 12%, 18%, and 28% resulted in a revenue loss of roughly Rs 70,000 crore in a year, according to estimates.

According to reports, the GST council has issued a proposal for rate modifications to states, asking for their input.

“States were asked for their inputs for the rate changes. Some items where the manufacturers have not transferred the benefits of the rate cuts to consumers should see a rate reversal. But, for other items of common use, the rates should remain as it is,” an official of a state government said.

The Sunday Express did not receive a response to questions provided to the GST Council Secretariat.

The rate changes may be phased in, as many states have expressed reservations about the timing of the proposed changes, given the rising inflation trend. In March 2022, wholesale price index-based inflation reached 14.55 percent, while retail inflation reached 6.95 percent, a 17-month high.

According to economists, there may be a pattern of WPI inflation collapsing into retail inflation as a result of stronger pricing power with corporates due to market inefficiencies induced by the Covid-19 pandemic.

GST collections have been strong in recent months, indicating development in the organised sector and increased inflation rates, as well as anti-evasion initiatives such as action against false billers.

In March, GST receipts hit a new high of Rs 1.42 lakh crore for sales in February, up 14.7% from March 2021 and 45.6 percent higher than March 2020.

The 45th GST Council meeting, held in Lucknow in September 2021, addressed revenue stream inconsistencies resulting from previous rounds of rate rationalisation. Union Finance Minister Nirmala Sitharaman said after the meeting that the revenue neutral rate had dropped to 11.6 percent from 15.5 percent.

“The Revenue Neutral Rate of 15.5 per cent coming down to 11.6 per cent is because of course, the Council in its wisdom probably over the years had reduced the rate of many, many items and not just the reduction but the resultant refund due to the inversion have resulted, net net, in the collection coming down from the revenue neutral levels. As a result, we feel that the overall collection has come down. We also feel why it has come down. But if we all put together we can all see that we are far below the revenue neutral rate,” she had said.

Two GoMs were constituted as a result, one to look at rate rationalisation and inverted duty structures, and the other to look at GST system changes through compliance measures, data analytics, and IT systems.

According to a September 2019 report by the Reserve Bank of India (RBI), the GST Council's rate rationalisation reduced the effective weighted average GST rate from 14.4% to 11.64% at the time of launch. However, it claimed that increased buoyancy was accomplished by broadening the tax base and eliminating distortions.