Bring in three-rate GST structure, says study by Finance Ministry-backed think-tank

What is the News?

National Institute of Public Finance and Policy (NIPFP), an autonomous think tank backed by the Finance Ministry, has released a study titled “Revenue Implications of GST Rates Restructuring in India: An Analysis”. The study has suggested the Government to rationalise the GST rates without losing revenues.

What is the current GST Tax rate structure?

Currently, the GST regime levies eight different rates

• Five key tax slabs: zero, 5%, 12%, 18% and 28%. 
• A compensation cess is levied on demerit and luxury goods, over and above the topmost rate of 28%.
• Special rates of 0.25% on diamonds, precious stones and 3% on gems and jewellery. 

What is the problem with this GST Tax rate structure?

Multiple rate changes since the introduction of the GST regime in July 2017 have brought the effective GST rate to 11.6% from the original revenue-neutral rate of 15.5%.

Note: Revenue Neutral Rate(RNR) may simply be defined as the tax rate which seeks to achieve and garner similar revenue under the newly implemented tax structure as collected from taxes that were in force prior to the implementation of this new tax structure. Thus, basic objective of the RNR can be described to prevent the newly implemented tax structure from having negative revenue implications.

What has the NIPFP suggested in its study?

NIPFP has suggested that the Government can rationalise the GST rate structure without losing revenues by rearranging the four major rates of 5%, 12%, 18% and 28% with a three-rate framework of 8%, 15% and 30%.

Source: This post is based on the article “Bring in three-rate GST structure, says study by Finance Ministry-backed think-tank” published in The Hindu on 26th November 2021.