New Delhi: Finance minister Arun Jaitley on Thursday indicated that the number of tax slabs under the goods and services tax (GST) regime could be reduced once the new indirect tax system which was launched on 1 July settles down.
Speaking at the India summit organized by The Economist in the capital, Jaitley said the GST Council, which takes decisions on all indirect tax matters, may consider the idea of collapsing the standard rates of 12% and 18% into one in due course.
“I do see a situation where, assuming tax compliance remaining high and the transition smooth, the GST Council, the first federal institution, which is sensitive to the challenges of time, can take the appropriate decision (on tax slabs) taking into account its impact on inflation,” the finance minister said.
Jaitley said the council chose to keep four rates—5%, 12%, 18% and 28%—rather than a single rate for all products keeping in mind the fact that consumers are in different income groups.
Income diversity makes it difficult to tax luxury cars and items of daily consumption at the same rate. The minister said that the council kept many products in the lower rates of 5% and 12%, which ensured that the GST rollout did not have an inflationary effect.
“The government thinking aloud on reducing the number of GST slabs is a welcome development. Going forward, the 12% and 18% slabs could be converged and the list of items in the 28% slab could be pruned to simplify the GST regime,” said Pratik Jain, partner and leader of indirect practice at PwC India.
The indirect tax reform has led to an increase in the tax base, which substantially increases the government’s ability to spend on development schemes.
Even with two thirds of the GST assessees remitting taxes for July—the first month of rolling out the tax reform—and excluding those who have subscribed to a liberal quarterly payment scheme, GST receipts have exceeded the target of Union and state governments for the month.
The finance minister disclosed on Tuesday that in July, Rs92,283 crore had been received as GST receipts from 3.9 million tax payers, compared with the target of Rs91,000 crore.
Meanwhile, the direct tax base is also expanding, Jaitley pointed out, adding that he hopes to end 2017-18 with a tax-to-gross domestic product ratio of 11.3%.