High inflation may delay rejig of GST rates

NEW DELHI: Inflation may take a toll on GST rate rationalisation as the Centre and the states may find it prudent to postpone a decision until prices stabilise given that the rejig may see the levy on several items go up, government sources indicated on Wednesday.

While a group of state finance ministers has been constituted to look into the issue, it is yet to support the move and the GST Council is unlikely to meet until the second half of June. Given that the rejig of GST rates may see the levy on several items go up, the Centre and the states may postpone a decision until inflation eases, government sources indicated on Wednesday.

“There was genuine problem in rate rationalisation. Even if the GoM submits its report now and it is presented before the Council, will the Council take a call? Difficult to say as the ecosystem is strenuous,” a senior government official said.

While the issue had come up in 2019 as well, the GST Council decided to defer a decision on it in the wake of the economic slowdown and the Covid-19 impact meant that the issue of rationalisation and reworking slabs could not be taken up for two years. The ministerial panel was set up after a meeting in Lucknow last September.

Several experts have argued that reworking the current mechanism is crucial in the wake of classification-related issues as well as further improving revenue collections given that the revenue neutral rate is now at around 11.5% against 15% estimated ahead of the launch of the regime in 2017.