The Council of Goods and Services Tax's (GST) next few meetings would take the India's new indirect tax regime closer to the aim of providing a transparent tax system with minimal exemptions and fewer rates.
Anonymous sources who are working on the GST rate rational said that a three-tier rate tax structure may become a reality by early next fiscal after a group of ministers (GoM) set for a purpose that is presented to the GST Council.
The sources said that the idea is to turn from the present broad five-tier rate structure of 0, 5, 12, 18 and 28 percent to just three of 5, 18 and 28 percent.
There would be a compact list of items exempted and their are several demerit goods that could continue to attract higher duty levels.
The reduce structure would be done by merging two existing rate slabs (12-18 percent).
The progress would be made in parts with rate changes cleared by the GST Council before a three-tier rate structure is placed for all the items.
Krishnamurthy Subramanian, the Chief Economic Adviser in the Union finance ministry has also stated that the big reform in GST rates would be undertaken soon as was predicted earlier.
Presently, the country has four primary GST rates of 5 percent, 12 percent, 18 percent and 28 percent.
There is also a tariff on luxury items as well as on demerit goods such as automobiles, tobacco and aerated drinks.
On the precious stones, special rates of 0.25 percent and 3 percent on metals are applicable.
A proposal to merge the 12 and 18 percent rate slabs into a single rate slab has been discussed for several years, now.
It was anticipated that a move in the direction would be taken in fiscal year. But Covid-19 obstruction and sharp fall in collections and relief measures hinder the plan on rate rationalisation.
The GST collections again rising over rupees 1 lakh crore mark, the proposal of the three rate structure should be out at the earliest.
If the GST council approves the merger of the two rates slabs, items such as ghee, cheese and spectacles may become costly, and soap, kitchenware and apparel may become inexpensive.
The Finance Minister of the country, Nirmala Sitharaman has lately stipulated that the effective tax rate structure under GST has fallen from the original revenue neutral rate of 15.5 percent to 11.6 percent 'knowingly or unknowingly' due to several rate cuts since the introduction of GST in July, 2017.
The process of rate rationalisation is anticipated to correct this gap through rate changes in several items categories.