CBIC Chairman Proposes 3-Tier GST Structure to Minimize Litigation and Harmonize Rates
By: Admin
July 26, 2024
Categories: GST Recent News
4 Min Read
In a significant development following Finance Minister Nirmala Sitharaman’s call for GST rate rationalization in her Budget speech on July 23, CBIC Chairman Sanjay Kumar Agarwal has advocated for a 3-tier GST rate structure. Agarwal’s proposal aims to streamline GST rates to minimize litigation and ensure better alignment with the nature of goods and services.
The Need for GST Rate Rationalization
Finance Minister Nirmala Sitharaman, in her seventh consecutive Budget speech, underscored the need for a rationalization of GST rates. This move is intended to simplify the tax system, reduce compliance burdens, and curb litigation. Following this, CBIC Chairman Sanjay Kumar Agarwal has pitched a 3-tier GST rate structure to address these issues effectively.
Agarwal’s 3-Tier GST Structure Proposal
In an interview with CNBC TV-18, Agarwal emphasized that the GST rate rationalization should adhere to a guiding principle. His proposed 3-tier structure includes:
- One Standard Rate: Consolidating the current standard rates of 12% and 18% into a single, uniform rate. This approach aims to reduce classification issues and simplify compliance for businesses.
- Higher Rate: Implementing a higher rate for items that are consumed by specific sections of society or deemed luxury goods.
- Lower Rate: Applying a lower rate to essential goods and services to make them more affordable for the general public.
Agarwal stressed that such a structure would eliminate confusion and ensure that items of similar nature are taxed uniformly. He also highlighted the importance of designing this structure with an eye towards reducing litigation and easing compliance for businesses.
Customs Duty Structure Overhaul
In addition to the GST rate rationalization, Finance Minister Sitharaman’s Budget also hinted at a revamp of the customs duty structure. Agarwal indicated that the CBIC is working on a revised customs duty framework, which is expected to be unveiled in the upcoming Budget on February 1, 2025.
The new framework will focus on three main objectives:
- Encouraging Domestic Players and Export-Oriented Products: By adjusting customs duties to support domestic industries and boost exports.
- Strengthening and Diversifying the Supply Chain: To improve resilience and efficiency within the supply chain.
- Correcting Duty Inversions: Addressing discrepancies in duty structures that may adversely affect businesses.
Agarwal noted that the CBIC has already developed a comprehensive study and rate list for this purpose. The finalization of new customs rates will be based on real-time granular data to ensure accuracy and relevance.
Online Gaming Sector Developments
Agarwal also discussed the online gaming sector, revealing that GST collections from this industry have surged dramatically since the implementation of a 28% GST rate on online gaming, casinos, and race courses. Monthly revenue collections have increased from an average of Rs 250 crore to approximately Rs 1150 crore, with some months seeing collections rise to Rs 1350 crore.
Considering Petroleum Products for GST
On the topic of bringing petroleum products under GST, Agarwal proposed a graded approach. He suggested starting with industrial use petroleum products, such as crude oil and natural gas, as these are more feasible for GST inclusion. In contrast, products used for transportation, like ATF, petrol, and diesel, are more contentious due to their significant revenue contributions to both states and the central government.
Agarwal acknowledged the complexity of integrating these high-revenue products into the GST system, but emphasized the need for a thoughtful approach to ensure both states and the center can maintain their revenue streams while enhancing tax efficiency.
Conclusion
The proposed 3-tier GST structure by CBIC Chairman Sanjay Kumar Agarwal represents a strategic effort to streamline tax rates, reduce litigation, and improve compliance. With the upcoming revision of the customs duty structure and ongoing developments in the online gaming sector, these initiatives reflect a broader goal of refining India’s tax system to better serve businesses and consumers alike.
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