GST rate rationalisation: Group of Ministers to provide status update next month, says CBIC Chairman

Three-slab GST rates: Taxation, customs, and excise in India will soon witness a paradigm shift as laws related to these will be reviewed, said  Sanjay Kumar Agarwal, Chairman, Central Board of Indirect Taxes and Customs (CBIC).  

In an interview with Republic Business, Agarwal said a group of ministers (GoM) which is scrutinising GST rates, will make a presentation of GST rationalisation in the next GST council meeting in August.  

Additionally, there is a growing demand to bring petroleum products under GST, which according to Agarwal, would require a graded approach to ensure revenue neutrality. He highlighted the significant tax revenue generated from online gaming, amounting to Rs 1,150 crore per month, marking a four-fold increase. Following are the excerpts.

GST rate rejig  

For arranging the GST rates, a group of ministers committee has been constituted by the GST council. That committee is looking into the rates and the various proposals which have been received. This rate rationalisation exercise has to be a very comprehensive exercise in which it will be looked into that 

Whether the commodities which are presently packed at one rate need to be shifted to some other rate. In addition to that, that various presently there are four slabs. One is at 12 per cent, 18 per cent, one is at lower rate of 5 per cent, other is at 28 per cent.  So, ideally in internal taxation, there is generally a standard rate, there is a lower rate which is applicable to the goods where there is a societal obligation to keep the rate at low.There is a higher rate which is normally applied on.

Bringing fuel under GST  

Many times these proposals have been received that the five petroleum products, which are presently not under GST, may be covered under GST. These five items are crude oil, natural gas, petrol, diesel and ATF. If you see these five items, there are two items, first two items. 

Crude oil is used as feedstock for further production of various petroleum items. Some of them are under GST and three out of them, three, that is petrol, diesel and ATF are out of GST and presently chargeable to Union Excise Duty or NWED. The natural gas again predominantly used  for industrial purpose as a feedstock for, in the manufacture of many items including fertilizers. 

In addition to that, natural gas is used as CNG, as automotive fuel and PNG for domestic fuel. So, this is basically the purposes for which these petroleum items are used. That a call can be taken that whether it can be a graded approach when maybe some items are included in GST which are used as industrial feedstock and subsequently we may think of including other items which are used as automotive fuels and fetch a lot of revenue to the central government and state government. So, because any exercise which is undertaken has to be a revenue neutral exercise. So, revenue neutrality has to be maintained.

Online gaming taxation  

Certain amendments were carried out and from October 1, the industry is paying the GST as per the amendments which were carried out with prospective effect. Since then the revenue which is being paid by this sector is to the tune of Rs 1,150 crore per month as compared to earlier when the revenue which was coming from this particular sector was Rs 250 crore per month. 

So there is a fourfold increase in the revenue which is coming. A couple of months back it even went up to Rs 1,350 crore also. So, there is a very healthy growth of revenue which is coming from this sector and it is consistent. Presently there is no proposal which is with us for any kind of review. And for the past period the matter is sub-judiced and it is before the Honorable Supreme Court.

Lesser duty on mobile phones, gold  

As far the reduction of duty on gold from 15 per cent to 6 per cent is concerned, gold is a main raw material for the gems and jewellery sector. At a higher rate of duty, the cost of gold is more and that blocks the capital of the gems and jewellery units. 

On gold, the rate of duty has been reduced from 15 per cent to 6 per cent and if you see that there are lot of demands from the gems and jewellery sector for reduction of duty on gold because gold is the main raw material for this particular sector and at higher rate there was a capital blockage till the time jewelry is produced and value is realized. 

This will definitely be promoting the gems and jewellery sector for jewellery manufacturing either for domestic use or for exports. This particular sector provides a lot of employment and it adds to GDP and leads to exports also. 

As far as mobile phones are concerned, in fact, the rate of duty on mobile phones and its parts were increased in 2020 under phase manufacturing program. The objective for which the rate of duty was raised was that the value chain is deepened and industry comes in the India. for manufacturing the mobile phone for domestic use, as well as for exports. 

That ecosystem has now been established. And I'm happy to say that the PCVA, whose value is 55 per cent in the total cost of the mobile phone, is mostly now being manufactured within India. 

Because we are seeing that there is a declining trend of imports of PCVA in India. So, once that ecosystem has been set up and the objective with which the rate of duty on mobile phone was increased, once that objective is achieved, then there is a case for reduction of duty to normal level. So, with that confidence, the rate of duty has now been reduced on mobile phones from 20 per cent to 15 per cent. 

As far as mobile charges are concerned, mobile charges are manufactured in the country except in few cases where it is required for exports to certain countries where the PIN requirements are different. So with that objective the greater duties have been calibrated and I would like to say that mobile phones is one of the success story of PMP program.