Sitharaman may outline plans for GST 2.0 in Budget, say experts

New Delhi: With most of the teething issues, like glitches in the online portals, invoice matching and delays in refunds, largely being settled and monthly revenue averaging over Rs 1.6 lakh crore, the centre is likely to push forward the second-generation reforms in the Goods and Services Tax (GST), experts said.

In the interim budget to be presented on February 1, Finance Minister Nirmala Sitharaman is likely to give broad outline on reforms in the GST system, said MS Mani, partner at Deloitte India.

“While GST changes will need the consent of the GST Council, an overall direction in terms of the thought process on the next stage of GST reforms would be appreciated by businesses,” Mani said.

There are two broad issues that would herald the second-generation reform in GST. One, rationalisation of tax slabs and the second, bringing petroleum products under GST.

Most of the countries with GST or similar nationwide taxation have either one or two slabs. In India, there are four main GST tax slabs - 5%, 12%, 18% and 28% with applicable cess. Apart from this, there are some special rates. Gold is taxed at 3%, while rough precious and semi-precious stones attract 0.25% GST.

A group of ministers (GoM) was formed in 2021 under the chairmanship of the then Karnataka chief minister Basavaraj Bommai to suggest rationalisation of GST slabs and rates. The Bommai panel submitted an interim report in June 2022 and sought more time from the GST Council on their recommendations on rates.

However, after the change in government in Karnataka, the panel has been reconstituted. It is now headed by Uttar Pradesh Finance Minister Suresh Khanna. The seven-member panel includes finance ministers from Kerala, Karnataka, West Bengal, Rajasthan, Bihar and Goa.

Mani said the tax slabs are likely to be reduced to three. “My guess is 12% slab will be completely removed. The items will be merged with either 18% or 5%,” said Mani adding that there are possibilities of rejigging the 5% slab into a higher rate of 8%. Majority of the products are taxed at 18%. The highest slab of 28% plus cess is levied on luxury, demerit and sin goods. GST Council has revised the rates for various products several times.

Industry body Confederation of Indian Industries (CII) has also pitched for three-rate structure. “Low rate for essentials, standard rate for most goods, and high rate for luxury and demerit goods. Signal bringing in products (petroleum products, electricity and real estate) which are currently outside GST, under the GST regime,” CII noted in its recommendations for the union budget.

Bringing petroleum products under the GST ambit has been a sticky issue between the centre and states, as taxes on petroleum products is an important source of revenue for all.

While the union government has been pitching for bringing the petroleum products under the GST ambit, most states are sceptical. “Once the states agree, we will have the petroleum products also covered by GST,” Sitharaman said while speaking at a post-budget session last year.

Mani said the centre may push for bringing aviation turbine fuel (ATF) and natural gas under the GST ambit as the possibility of states’ opposition to these products are less when compared with diesel and petrol.

He said buoyant tax collections will a lot of confidence to the government to push forward the pending reforms. In the first nine months of the current financial year the average monthly GST collection stood at Rs 1.66 lakh crore, which is 12% higher year-on-year.