GST Council to trim items in top tax slab

NEW DELHI: Federal indirect tax body the goods and services tax (GST) Council is set to trim the list of items in the highest tax slab of 28% by shifting some items of common use as well as products made predominantly by small and medium enterprises (SMEs) to a lower tax slab.

The tax rate fitment committee, a panel of central and state officials assisting the Council, is combing through the list of items in the highest slab to identify such items, two people with knowledge of the development said on condition of anonymity.

The Council wants to address the public perception of high tax rates on certain items of common use as well as give further relief to SMEs, which are labour-intensive. India is home to 56 million SMEs, according to data available from the ministry of micro, small and medium enterprises.

“Besides, SMEs contribute only about 5% to indirect tax revenue. Hence giving relief to them may not hit revenue collection. The idea is to ease the pain, not to dilute GST structure,” said one of the two people cited above.

The revenue department follows the thumb rule that 80% of the tax payers contribute only 20% of tax revenue, while the remaining small section of assessees account for the lion’s share of tax proceeds.

The challenge before the Council is that tax rates apply uniformly to every business irrespective of their sales. “The same product may be manufactured by large industry players as well as SMEs. In such cases, a rate cut will affect revenue receipts from the bigger players too although they need no such relief,” said the second official cited above, who also spoke on condition of anonymity.

The official added that the eventual goal is to retain only so-called sin goods such as cigarettes, the consumption of which the state wants to discourage, in the highest tax slab. However, the pruning of the items in 28% slab may be a gradual exercise as the Council has to also take into account revenue considerations as tax evasion is common in the country, said the official.

MS Mani, partner-GST, Deloitte India, said there is need for a relook at some of the commonly used products that have been classified under the 28% tax bracket.

The GST Council chaired by finance minister Arun Jaitley will meet in Guwahati, Assam on November 9 and 10 to consider further changing the liberal quarterly tax filing scheme called composition scheme meant for small businesses.