The GST Council, in its meeting to be held on September 9, is expected to discuss the roadmap for rate rationalisation exercise. However, the final decision will be taken later on.
“The committee of officers will make a detailed presentation during the meeting on deliberations taken place till now on the rate rationalisation exercise. Then, the Group of Ministers (GoM) will take it forward and work on the recommendations and those will be considered by GST Council in the next meeting,” Finance Minister Nirmala Sitharaman said here on Tuesday. She also said that that the compensation cess issue will also be discussed during the same meeting.
A GoM, under the convenorship of Bihar’s Deputy Chief Minister, Samrat Chaudhary, is working on the rate rationalisation exercise. As on date, there are four normal rates tax rate slabs — 5, 12, 18 and 28 per cent — besides a few special rates such as 0.25 per cent (rough or sown diamond) and 3 per cent (gold and silver). Some goods in the 28 per cent-slab also attract compensation cess of up to 22 per cent, taking the total rate to 50 per cent.
Last week, Chaudhary convened the first meeting of the reconstituted GoM, where majority of the members were in favour of retaining the present structure. “More discussions will happen before a final decision is taken,” he said while adding that the group has received representations from restaurants, beverages and online gaming sectors, which will be reviewed and some of them will be sent to the Fitment Committee.
Revenue Neutral Rate
The Minister mentioned that the Revenue Neutral Rate (RNR), has come below 11 per cent. At the time of introduction, the GST was between 15 and 15.5 per cent. Reduction of RNR will have important role in rate rationalisation.
Compensation Cess
Talking about compensation cess, she said that this levy on luxury and sin goods is also going to be discussed and can come up in the September 9 meeting or later. A compensation cess was initially brought in for five years to make good the revenue shortfall of States following the implementation of the GST. The compensation cess expired in June 2022, but the amount collected through the levy is being used to repay the interest and principal of the ₹2.69 lakh crore that the Centre borrowed during Covid-19 to account for the shortfall in revenue collection.
As recommended by the Council, the cess will continue to be collected till March 31, 2026. Now the loan repayment is expected to completed by November 2025, four months ahead of the scheduled March 2026. The GST Council will now have to take a call on the future of the current GST compensation cess with regard to its name and the modalities for its distribution among States once the loans are repaid. At the 53rd GST Council meeting on Saturday, it was learnt that Karnataka had raised the issue of continuation of compensation cess levy, repayment of the loan amount and its way forward.