Three-rate GST structure

Three-rate GST structure

Part of: Prelims and GS-III – Economy

Context As per a National Institute of Public Finance and Policy (NIPFP) study, the Government can rationalise the GST rate structure without losing revenues by rearranging the four major GST rates (5%, 12%, 18% and 28%) with a three-rate framework of 8%, 15% and 30%. 

• The NIPFP is an autonomous think tank backed by the Finance Ministry. 

Significance of the study

• The GST Council has tasked a Group of Ministers, headed by Karnataka CM to propose a rationalisation of tax rates and a possible merger of different tax slabs by December to shore up revenues.
• The NIPFP paper also  notes that raising rates on ‘high-value low volume goods’ like precious stones and jewellery ‘may encourage undisclosed transactions and revenue leakages.

Current rate structure 

• GST is levied at four rates – 5%, 12%, 18% and 28%. 
• The list of items that would fall under these multiple slabs are worked out by the GST council.
• Further, the tax on gold is kept at 3%. Rough precious and semi-precious stones are placed at 0.25% under GST.

What is the Goods and Services Tax (GST)?         

• Value-added tax levied on most goods and services sold for domestic consumption.
• It was launched on 1st July 2017.
• It subsumed almost all domestic indirect taxes under one head.
• Paid by consumers, but it is remitted to the government by the businesses selling the goods and services. 
• The GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
• Integrated Goods & Services Tax (IGST): Inter-State Import of goods or services  
• GST Council: Constitutional body (Article 279A) for making recommendations to the Union and State Government on issues related to GST.