The GST Council may reduce the number of products in the highest slab, following a series of complaints by state finance ministers, who have argued that several common-use products face a 28% levy, causing hardship to people.
At least two state finance ministers told TOI that a number of items like bath fittings, cement, steel products such as rods used for construction are in the top bracket and do not belong there. “The idea was to classify the goods and services into merit and non-merit goods with the non-metrit goods in the top bracket. But we have gone beyond that,” said a state finance minister, who has usually sided with the Centre on most issues.
The minister said the “block” was too big and needed to be reduced. On Saturday, CBEC officials had also said that there were far too many items in the top slab.
The second state FM said the issue is expected to be discussed at the next meeting of the Council scheduled in Guwahati, given the concerns expressed by several states. “In the medium-term the aim is to move to fewer slabs,” the minister said. Finance minister Arun Jaitley had last week reiterated the plan to move to fewer slabs in the future.
Some of the state government officials also believe that the 28% levy was also resulting in sellers evading taxes as it is quite common for shopkeepers to advise buyers to pay in cash, where no invoice is issued.
The talk of reducing the number of products in the top bracket follows finalisation of a concept paper at last Friday’s GST Council meeting. It was decided that a formula for review, including the need for reduction in slabs, the tax credits available and revenue impact will have to be discussed by the Council in detail before a decision is taken, said a source.
Separately, the government has also announced the establishment of a panel of state FMs, which will review the tax structure for different categories of restaurants for a possible reduction or rationalisation. Restaurants currently face a levy of 12% to 28%, depending on whether they are mere eateries or restaurants in five-star hotels.
In addition, the panel has three other terms of reference, including possible exemption for sales revenue from exempted goods in calculating the overall turnover of an entity, a decision that is fraught with the risk of massive leakage from the government treasury.
The committee will see if the composition scheme can be extended to outward supply of goods. The scheme allows traders (1%), manufacturers (2%) and eateries (5%) with turnover of up to Rs 20 lakh to Rs 1 crore to pay GST at a flat rate with a lower compliance burden.
In deciding GST rates, the government had opted for a principle of equivalence, where the combined incidence of VAT and excise, or service tax, was factored in. The Centre’s focus was on ensuring that there was no rise in the burden on common-use items, especially those which are part of consumer price index, while protecting its revenue. Several items such as stationary were put in the top bracket, decisions that have already been tweaked.
At the same time, the GST Council, comprising the Centre and the states, had consciously opted for multiple tax rates in segments such as restaurants and hotels with the luxury segment in the top bracket.