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Fewer GST slabs possible in the future
August, 31st 2017

Finance minister Arun Jaitley on Thursday indicated that the number of tax slabs under the goods and services tax (GST) regime could be reduced once the new indirect tax system that was launched on 1 July settles down.

Speaking at the India summit organised by The Economist in the capital, Jaitley said the GST Council which takes decisions on all indirect tax matters may consider the idea of collapsing the standard rates of 12% and 18% into one in due course.

“I do see a situation where, assuming tax compliance remaining high and the transition smooth, the GST Council, the first federal institution, which is sensitive to the challenges of time, can take the appropriate decision (on tax slabs) taking into account it’s impact on inflation,” the finance minister said.

Jaitley said the Council chose to keep four rates, 5%, 12%, 18% and 28%, rather than a single rate for all products keeping in mind the fact that consumers are in different income groups.

Income diversity makes it difficult to tax luxury cars and items of daily consumption at the same rate. The minister said that the Council kept many products in the lower rates of 5% and 12%, which ensured that the GST roll out did not have an inflationary effect.

The indirect tax reform has led to an increase in the tax base which substantially increases government’s ability to spend on development schemes.

Even with two thirds of the GST assessees remitting taxes for July—the first month of rolling out the tax reform—and excluding those who have subscribed to a liberal quarterly payment scheme, GST receipts have exceeded the target of union and state governments for the month.

Also read: Was demonetisation worth it?

The minister had disclosed on Tuesday that in July, Rs92,283 crore had been received as GST receipts from 3.9 million tax payers, compared with the target of Rs91,000 crore.

Like GST, the government’s decision last November to demonetise high value currencies too had helped in integrating a part of the informal economy into the formal one, the finance minister said. It has also helped widen the tax base, he added, pointing to the increase in the number of tax returns filed, Jaitley said.

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