97.5% of items are now in 18% or lower GST bracket: Arun Jaitley

Once revenue collections increase sufficiently, country can possibly move to a GST system with only one standard rate, instead of the two standard rates of 12% and 18% currently, he says.

December 24, 2018 02:29 pm | Updated 06:01 pm IST - NEW DELHI

Arun Jaitley addressing the media in New Delhi. SANDEEP SAXENA

Arun Jaitley addressing the media in New Delhi. SANDEEP SAXENA

About 97.5% of the goods are already in the 18% or lower Goods and Services Tax (GST) bracket, Union Finance Minister Arun Jaitley wrote in a blog post on December 24, adding that even though the GST revenue targets set were a very stiff one, several States were already achieving it and more.

Mr. Jaitley also wrote that in the future, once revenue collections increased sufficiently, the country could possibly move to a GST system with only one standard rate, instead of the two standard rates of 12% and 18% currently.

“Of the 1,216 commodities which are used, broadly 183 are taxed at zero rate, 308 at 5%, 178 at 12% and 517 at 18%,” Mr. Jaitley wrote. “The 28% slab is now a dying slab.”

Modi's recent remark

This statistic assumes significance against the background of Prime Minister Narendra Modi’s recent comment that the government would bring 99% of the items into the 18% or lower bracket.

“A frequently made comment has been that the revenue position has been disappointing,” Mr. Jaitley said. “The comment is based on an inadequate understanding of both the targets and the revenue increase. The targets set for the States in the GST regime is unprecedently high. Even though GST commenced on July 1, 2017, the base year for revenue increase has been calculated is 2015-16.”

He said, “For each year a 14% increase is guaranteed. Thus, even when 18 months have not been finished since the launch of GST, on this day every state has a target of improving its revenue with three 14% increases compounded annually over the base year of 2015-16. This is close to a 50% being reached in the second year itself. It is almost an unachievable target.”

Yet, Mr. Jaitley said, six States had achieved it, and another seven were within the striking distance of achieving it. By the third, fourth and fifth year, the ability to increase revenues and close the gap would substantially increase.

“This increase in the tax collection has to be factored keeping in mind the significant rate reduction which has taken place in the GST. The reduction in monetary terms amounts to about 80,000 crores per year. Notwithstanding the substantial tax reduction, the GST collection in the first six months of this year has shown a significant improvement as compared to the first year. The average monthly tax collected in the first year was 89,700 crore as compared to 97,100 crore a month in the second year,” he said.

First set of rate rationalisations about to end

Mr. Jaitley wrote that the GST Council was close to completing the first set of rate rationalisations — phasing out the 28% slab except for luxury and sin goods.

“A future road map could well be to work towards a single standard rate instead of two standard rates of 12% and 18%,” he said. “It could be a rate at some mid-point between the two. Obviously, this will take some reasonable time when the tax will rise significantly. The country should eventually have a GST which will have only slabs of zero, 5% and standard rate with luxury and sin goods as an exception.”

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