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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.

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