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Informist, Thursday, Feb. 6, 2025

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – There is "nothing majorly wrong" with the current four-slab goods and services tax rate structure, according to Central Board of Indirect Taxes and Customs Chairman Sanjay Agarwal. The main task of the rate rationalisation panel is to ensure that each item or service is treated in a uniform manner, rather than putting them into multiple tax slabs based on their ingredients or classification, Agarwal said.

 

"The rate rationalisation panel's objective is to simplify the tax structure. Complexity comes in the rate structure when we treat the same item with different taxes based on its ingredients or capacity," Agarwal told Informist in an interaction. "The objective should be to bring down the number of tax slabs, but that is not the goal. The goal is that we should have a tariff structure which gives complete certainty about the rate which is applicable, so businesses can apply the rate confidently."

 

While the intention is to charge a uniform GST rate, the chairman said there are many headwinds to that process. According to Agarwal, if a 100CC bike and a luxury bike are taxed at the same GST rate, the revenue implications will be huge. In that case, a classification becomes necessary, keeping in mind the GST does not become a burden on the consumer. "Revenues have to be raised in a manner that it pinches the pocket as little as possible," he said.

 

Agarwal's comments assume significance in the backdrop of the GST rate overhaul, which is currently underway. The proposal to reduce the number of slabs from four - 5%, 12%, 18% and 28% - to three by merging 12% and 18% has been on the table for a while. At the GST Council meeting in December, the rate rationalisation panel's interim report recommending rate tweaks on 148 items was deferred. Finance Minister Nirmala Sitharaman had said that council members were of the view that more details need to be worked out before rate changes can be announced.

 

CUSTOMS CORRECTION

One of the key takeaways of Sitharaman's eighth budget speech presented on Saturday was the rationalisation of customs tariff structure by reducing the number of tariff rates to eight, including the zero rate, from 15 earlier.

 

Agarwal said that in the current economic scenario, "the government could do this much", but in the future, there is scope to rationalise the customs structure further. The new customs structure has zero, 2.5%, 5%, 7.5%, 10%, 15%, 20% and 70% slabs. The chairman said that among the current eight slabs, it would be feasible for the government to look into reducing the highest slab of 70% in the future.

 

In the Budget for FY26, though the government reduced the customs tariff rates for items like automobiles, the effective rate has remained the same as cess has been increased.

 

Besides looking at the highest slab of 70%, Agarwal said the government will hold "intensive" stakeholder consultations to bring down the Agriculture Infrastructure and Development Cess as well. "If it is possible to taper down AIDC, it will be done," the chairman said. The stakeholder consultations will begin "very soon", he said.

 

The tinkering of the customs structure with an equivalent levy of cess will also lead to states receiving a lower share of duties as collection from basic customs duties is shared with them, but not cess. Agarwal said reducing states' share was not the agenda and that the states' revenues would only be impacted marginally, in the range of INR 300-500 million per state. "If India has to progress, it is necessary to correct the optics and for that a beginning has to be done," the chairman said.  End

 

Edited by Deepshikha Bhardwaj

 

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