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Informist, Wednesday, Oct. 16, 2024

 

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--Sources: GoMs on GST rates, cess looking to mitigate any revenue losses
--Sources: Have more room to lower GST rate on essential items to 5% or nil
--Sources: Cess GoM may ask rates GoM to cut GST on some white goods to 18%
--CONTEXT: GoM on GST compensation cess meeting in New Delhi on Wednesday
--Sources: GoM on GST cess may suggest new tax on sin, luxury goods from FY27
--CONTEXT: GST compensation cess ends on Mar 31, 2026
--Sources: New sin, luxury goods tax to cover revenue loss once GST cess ends
--Sources: Centre, states to share mop-up from new tax on luxury, sin goods

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI - Two Groups of Ministers constituted by the GST Council are seemingly working together even as they weigh their separate agendas to rationalise indirect tax rates and the future of the compensation cess, senior finance ministry officials told Informist. They added that concerns about loss in revenue to the Centre and states from any tax rate cuts and the expiry of the compensation cess starting April 2026 had led to the suggestion of specifically classifying sin and luxury goods that would attract a new tax rate from 2026-27 (Apr-Mar).

 

"The intention is to first bring essential commodities or items for mass consumption, which are currently at 12% or 18%, to nil or 5%. The GST Council has already done work in that direction but there is room for more," a finance ministry official told Informist on the condition of anonymity.

 

The Group of Ministers on rate rationalisation, led by Bihar Deputy Chief Minister Samrat Chaudhury, is tasked with trimming the list of items exempt from the Goods and Service Tax, reassessing tax rates, and correcting inverted duty structures. The group met in late September after the GST Council had met on Sept. 9. The Council will meet again next month.

 

As part of its deliberations, the GST rate rationalisation panel may also raise tax rates on certain goods and services. "There are a few items which currently attract 5% or 12% GST. The GoM will evaluate if some items should be taxed at a higher rate, say 18%," another finance ministry official said, adding that this would be to ensure that there is no revenue loss net of all rate changes.  More 

 

COMPENSATION REPLACEMENT

At its last meeting in September, the GST Council had set up a group led by Union Minister of State for Finance Pankaj Chaudhary to take a call on the future of the compensation cess. The Group of Ministers is expected to submit its report by January 2026, just two months before the cess itself ceases to exist.

 

The Chaudhary-led panel meets on Wednesday and, according to officials, it is likely to recommend to the rate rationalisation panel that certain white-goods such as air conditioners be moved to the 18% tax slab from 28% at present, a third finance ministry official said.

 

However, to nullify the revenue loss from the expiry of the compensation cess and a possible reduction in tax rates on some white goods, the Chaudhary-led panel may introduce a new tax for sin and luxury goods that currently attract the highest GST rate of 28%, as well as a cess. This new tax will be shared by the Centre with state governments, the third official said.

 

"The idea is to regroup and recategorise what should be treated as a luxury item and a sin good," the official said. "The new additional tax--which will be levied after the compensation cess levy ends--will likely be only on these (luxury and sin goods) items," they added.

 

As part of its discussions, the Chaudhary-led panel may suggest keeping items such as aerated and caffeinated drinks--which are not seen as being luxury or sin goods--at the 28% GST slab but without any additional tax once the compensation cess is discontinued, the official said. As such, the tax burden on the consumers for these goods would come down, and can help lower their retail prices assuming companies pass on the tax benefit to customers.

 

The GST Council had extended the compensation cess till March 2026 to repay the loans taken to meet the shortfall in cess collections during the COVID-19 pandemic. These loans are expected to be paid back well in time.  End

 

With inputs from Krity Ambey

Edited by Vandana Hingorani

 

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