Simplifying to 3 Goods and Services Tax rate from current 4 rates
The Indian GST Council, which oversees the policy and running of Indian GST, is considering a proposal to cut the current four rates to 3 by merging the current 5% and 12% in to a new 8% category:
- Current GST rates: 5%, 12%, 18% and 28%
- Potential GST rates: 8%; 18% and 28%
A final report on the simplification, plus recommendations to end many exemptions and lower rate reliefs will be discussed by the Council at the end of March. Non-packaged and unbranded food and dairy items are exempted from GST.
The reforms will also pave the way to reform the state compensation mechanism, introduced on the launch of GST to make-up for lost revenues by the states.
Indian GST was introduced five years ago in 2017.
3 major issues for India GST reforms:
- Reduced from current four main rates (5%, 12%, 18% and 28%) down to three. It is probable that the 5% and 12% rates will be consolidated.
- As the current 5-year state revenue sharing arrangements are due to sunset, consideration for further sharing.
- Reducing the number of exempt supplies to help fund point 2. and lower than expected effective GST rate. There are currently 150 and 80 exempted goods and services, respectively.
With relatively buoyant revenues since the COVID-19 crisis abatement, now is seen as good timing to reform GST.