The GST Council is set to discuss the roadmap for the rate rationalisation exercise at its meeting on 9 September 2024, though a final decision will be made at a later date. ‘During the meeting, the committee of officers will give a detailed presentation on the progress of the rate rationalisation exercise so far,’ Finance Minister Nirmala Sitharaman said on Tuesday. She added that the Group of Ministers (GoM) will then work on recommendations, which will be considered by the GST Council in the next meeting. The issue of compensation cess will also be on the agenda for the same meeting.
A GoM, led by Bihar’s Deputy Chief Minister Samrat Chaudhary, is currently working on the rate rationalisation exercise. Currently, there are four standard tax rate slabs—5, 12, 18, and 28%—along with a few special rates, such as 0.25% for rough or uncut diamonds and 3% for gold and silver. Some goods in the 28% slab also incur a compensation cess of up to 22%, bringing the total tax rate to 50%.
Last week, Mr. Chaudhary chaired the first meeting of the reconstituted GoM, where most members expressed support for retaining the current structure. He noted that further discussions will take place before a final decision is made. The group has received representations from the restaurant, beverage, and online gaming sectors, which will be reviewed, with some being forwarded to the Fitment Committee.
Revenue Neutral Rate: The Finance Minister mentioned that the Revenue Neutral Rate (RNR) has dropped below 11 %, compared to the 15-15.5 % range when GST was introduced. This reduction will play a significant role in the rate rationalisation process.
Compensation CESS: Regarding the compensation cess, Sitharaman said it will be discussed either in the September 9 meeting or at a later date. Initially introduced for five years to cover the revenue shortfall for states following GST implementation, the compensation cess expired in June 2022. However, the funds collected are being used to repay the ₹2.69 lakh crore borrowed by the Centre during the COVID-19 pandemic to offset revenue losses.
As recommended by the Council, the cess will continue to be collected until March 31, 2026, with the loan repayment expected to be completed by November 2025, four months ahead of schedule. The GST Council will then need to decide on the future of the GST compensation cess, including its name and distribution modalities among states once the loans are repaid. At the 53rd GST Council meeting on Saturday, Karnataka raised concerns about the continuation of the compensation cess levy, repayment of the loan, and the way forward.
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