Revenue Secretary Tarun Bajaj pitches for GST rate rejig; hints industry should be ready to accept a rate hike too

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The revenue-neutral rate was 15.3 but right now the revenue-neutral rate we are getting is 11.6. There is a huge gap there, while there may be a case that the GST rates on some of the items need to be brought down, but there is definitely a need to be looked on the other side,” Bajaj said.

On the issue of compensation given to states as per the commitment given at the time of the launch of GST, which is expiring on 30th June this year, Bajaj said, “States this year, once the compensation ends on 30th June, will face a massive shortfall of funds, around Rs1 lakh cr overall. So that is a macro picture. I am not saying that looking at the macro picture doesn't mean that we do not look at the micro picture.”

Revenue Secretary Tarun Bajaj also reacted towards the pitch on GST rate Reduction on Medical Insurance, he said “On the escalated health costs point, I take that point, I have myself worked on the insurance side. But we just need to be careful that we do not go the way where done of the developed nations have gone where the health costs go up not only because of inflation but also go up because of the insurance. The point on 18% of GST, I will ask you all to make a representation to GOM headed by Karnataka Chief Minister Basavaraj Bommai, which is looking at the entire rate structure.”

The committee “is likely to give its report in the next 1 to 2 months. It will be a good idea for the industry to approach them.’

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Meanwhile, on the issue of GST rate Reduction demand from the Restaurant Industry, the revenue secretary said that the government is open to the idea of revising rates. “I also got this suggestion from the restaurant industry that they would like to go back to a higher rate of taxation with ITC being allowed to them, rather than (be) only on 5 percent tax rate. Which is very fine. We would be open to look into this.”

Currently, a 5 percent tax is levied on restaurant services, irrespective of whether it is air-conditioned or non-AC, without the benefit off input tax credit. Also, restaurants in starred-hotels that charge Rs 7,500 or more per day room tariff will be levied 18 percent GST but ITC is allowed for them. Those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 percent GST but will not get ITC. When the Goods and Services Tax was rolled out on July 1, 2017, a 12 percent tax on food bill was levied in case of non-AC restaurants and 18 percent in air-conditioned ones. All these got input tax credit, a facility to set off tax paid on inputs with final tax.

The GST Council later in November 2017 withdrew the ITC facility and levied a uniform 5 percent tax on all restaurants without the distinction of AC or non-AC, after it felt that the restaurants were not passing on the ITC benefits to the customers.

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On the question by Larsen and Tubro on government should re-consider a blanket coal cess, Bajaj did indicate that under certain conditions some exemptions can be brought in. “We are getting this request from stakeholding ministries as well. We will have to go back to the GST Council if we have to tinker with the coal cess.”

Revenue Secretary Tarun Bajaj was also posed a question on the fact that the government should consider a reduction in GST rates on Air conditioners, to which, Bajaj said that “I take your point on 28% GST needs to be reduced on high efficiency inverter ACs. GST Council will have to look into it.”

It is important to note that a final decision on any changes in rates and levy of cesses under the GST framework is taken by the GST Council, chaired by the Union Finance Minister and state FMs.

Currently, GST is a four-tier slab structure of 5, 12, 18 and 28 percent. Essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. On the top of the highest slab, a cess is levied on luxury and demerit goods.

There have been demands for merging the 12 and 18 percent slab as also taking out certain items from the exempt category to balance the impact of slab rationalisation on revenue.