GST Rate Rationalisation: What the New Government Means

The rationalisation of GST rates will largely depend on the composition of the coalition government at the Centre and the strengthened Opposition in Parliament, with the Congress party advocating for a single-rate regime.

Analysts point out that adjusting GST rates is a complex task. It involves reducing costs for some goods while increasing taxes on others, which could potentially lead to inflation.

One proposal under consideration is reducing the number of rates from four to three. This could be achieved by merging the 12 per cent and 18 per cent rates to form a 15 per cent rate or combining the 5 per cent and 12 per cent rates into an 8 per cent rate.

Currently, there are three standard GST rates: 5 per cent, 12 per cent, and 18 per cent, along with a de-merit rate of 28 per cent.

Efforts to streamline the tax system have been hampered by inflationary concerns, and experts believe these challenges will persist.

A seven-member committee, chaired by Uttar Pradesh’s finance minister Suresh Kumar Khanna, has been working on the rate rationalisation exercise for 1,200 categories of goods and all services, excluding those on the negative list.

Raising the 5 per cent GST rate, which includes essential items such as food and medicines, needs to be done gradually. Similarly, reducing the 18 per cent slab to 15 per cent suddenly would result in significant revenue loss. Therefore, any transition will need to be gradual.

Compulsions

One expert noted that rate rationalisation faces significant challenges due to the new political dynamics. These changes can complicate policy decisions, cause legislative delays, and introduce pressures from various stakeholders, making the process more complex.

Another expert emphasized the need to reconsider exemptions and input tax credit (ITC) restrictions, which have been major sources of litigation.

A simplified rate regime, according to another expert, would help reduce litigation. The new government is expected to provide clarifications on technical aspects, particularly concerning online gaming.

A tax expert highlighted that achieving rate rationalisation requires consensus between the states and the central government on a framework with defined timelines.

Online Gaming

In the online gaming sector, a tax expert noted that the industry has consistently raised concerns about high tax rates. They argue that GST should be calculated based on gross gaming revenue rather than the full face value. Clarity on the retrospective levy of GST would provide certainty to companies facing significant demands.

However, another tax expert believes that a reassessment of online gaming taxation seems unlikely at present, as the industry is adapting to the current tax framework.

An additional expert mentioned that the special regime for taxing “winnings from online games” introduced last year has brought uniformity to the sector.