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economy | IST

Boosting GST collections: Some states propose hiking rates to get closer to revenue-neutral rate

A potential GST rate hike might be on the anvil. CNBC-TV18 has learnt that some states have suggested hiking rates on a number of items to bring the current average GST rate closer to a revenue-neutral rate. The final call on this will be taken by this on December 18.

Taking cognizance of falling GST revenue collections and the lack of funds to meet the compensation requirements for states, state GST officers and stakeholders have suggested a combination of rate rationalization and hiking the cess limit on sin goods to overcome the current situation.
According to highly placed sources, GST Council on November 27 had asked states to come back with specific suggestions for revenue augmentation and many state officers and stakeholders have pitched for rate rationalization saying that the government can consider bringing down the 4-slab structure of GST to 3 rates, by hiking the 5 percent slab to 8 percent or above and merging the 12 percent with 18 percent slab and keeping the 28 percent slab as is.
Not just this, some states have also pitched for “hiking the cess rate on sin goods, which according to sources can yield close to Rs 2,000 crore more in the compensation cess kitty to meet the requirements of states,” sources added. Some states have called for the measures of rate rationalization and hiking of cess rate as a combination to deal with the current situation of poor revenues, sources added.
According to the data, the government needs close to Rs 14,000 crore every month to meet the compensation requirements of states, which can be done only through the compensation cess kitty, but on an average government is able to collect only Rs 7,000-8,000 crore every month.
This monthly requirement of late has increased to Rs 17,000 crore per month, in the wake of falling GST collections and if, the economy continues to grow at the current pace, then as per the current GST Rates, this requirement will get increased to Rs 21,000-22,000 crore per month, sources quoted the data analysis shared to the GST Council.
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“Considering the cess pool cannot meet these requirements the government wants GST Council to take a detailed view on the rates and the revenue generation measures available with the GST Council,” sources said.
It is noteworthy that as the finance ministry takes suggestions from states on how to augment revenue collections, a week back, a delegation of six state finance ministers and representatives met union minister Nirmala Sitharaman seeking early disbursal of the pending compensation dues.
The GST Council comprises of union finance minister as the chairman and MoS finance as vice chairman of the council. All the states and Union Territory finance ministers are members of the GST Council.
State officers and stakeholders feel that any measure of hiking cess rates and rate rationalization should be done to keeping mind that the average rate comes to the revenue-neutral rate. “State officers have suggested that since the current average GST Rate is 11.8 percent, a reworking of rate structure should be in a manner that the average rate comes closer to the desired revenue-neutral rate of 14-15 percent,” sources said.
“Some states have also gone ahead and said that few exempt category items like raw silk, expensive health care should be made taxable.”
“Also, GST on items like branded cereals, pizza, restaurant, cruise shipping, train travel in 2nd and 1st class AC coaches, olive oil, pink salt, pure silk/linen/cotton, should be moved higher from the current 5 percent slab,” sources added.
Some state officers have also pitched for hiking rates on items such as --  Mobile phones, state-run lottery, expensive & luxury hotel accommodation, business and first-class air travel, expensive painting from current 12-18 percent.
However, these are just suggestions right now, a committee of officers is due to meet tomorrow which will form a detailed report based on these suggestions that will be taken up by the GST Council when it meets next on December 18 to take a final call.