Kolkata: The 56th GST Council meeting is set to begin in the national capital today amid sky high expectations of a cut in tax rates, and therefore end-user prices, for hundreds of items. Another anomaly that could be addressed in this meeting is inverted duty structure. While consumers are waiting for lower prices on products and services, investors are expecting the GST reform to deliver the equity markets a much-needed shot in the arm in the rather challenging times defined by the US tariffs.
At the heart of the exercise is the reduction of four GST slabs to two 5% and 18%. There will also be a 40% slab that will be levied only on certain sin goods such as tobacco, pan masala, gutka, cigarettes, luxury cars, online gambling or gaming, caffeinated beverages, coal, lignite, peat and aerated drinks.
Double Diwali dhamaka being gift wrapped
While the Prime Minister himself set expectations high by promising a double Diwali dhamaka in the form of tax cuts leading to reduced prices, subsequent reports indicated that 99% of the items now in the 12% bracket could be moved to the 5% slab. Also, 90% of the items in the 28% slab could be moved to 18%. The slabs of 12% and 28% are likely to be abolished. Needless to emphasise, this will both reduce prices and sacrifice revenue for the government. FMCG items of daily use, consumer goods including white goods and consumer electronics can all become cheaper. Insurance premiums, both health and life, could be exempted from GST altogether.
Inverted duty structure
Inverted duty structure is an anomaly that has been consistently flagged by the industry. Inverted Duty Structure is said to take place when the tax rate on raw materials/services is higher than the output tax rate on the final product. Industry watchers are waiting to see how the inverted duty structure is addressed with the rate cuts. The Centre has indicated that GST 2.0 would proceed to rectify the inverted duty structure.
GST revenue
GST revenues has been on an upward graph in the past few years. In FY25, GST collections reached Rs 22.08 lakh crore which marked a year-on-year rise of 9.4%, while the average monthly flow stood at Rs 1.84 lakh crore. In FY21, the GST collection stood at Rs 11.37 lakh crore and the monthly average revenue was at Rs 95,000 crore.
Single GST rate the future?
In a report SBI Research has stated that the states will eventiually gain from the exercise since the GST reform is likely to encourage 1higher consumption, depsite a short term dip in government revenue. Another significant point is that analysts are already poitning out that the GST reforms now being undertaken will actually be a stepping stone to a single rate GST eventually that is in force in several developed economies.