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GST Council way may replace 5% rate with 3%, 8% slabs.

With states on board to raise revenue so that they do not have to depend on centre for compensation, the GST council at its meeting next month is likely to consider a proposal to do away with the 5% slab by moving some goods of mass consumption to 3% and the remaining to 8% categories, sources said.

Currently GST is a four tier structure of 5,12,18 and 28%. Besides gold and gold jewellery attract 3% tax.

In addition there is an exempt list of items like unbranded and unpacked food items, which do not attract the levy. Sources said in order to augment revenue the council may decide to prune the list of exempt items by moving some of the non-food items to 3% slab.

Sources said that discussions are on to raise the 5% slab to either 7 or 8% or 9%, a final call will be taken by the GST council which comprises Finance Ministers of both Centre and States.

Every 1 percentage point increase in the 5% slab, which mainly includes packaged food items, would roughly yield an additional revenue of Rs 50,000 crore annually. Although various options are under consideration, the Council is likely to settle for an 8% GST for most items that currently attract 5% levy.

Under GST, essential items are either exempted or taxed at the lowest rate while luxury and demerit items attract the highest tax. Luxury and sin goods also attract cess on top of the highest 28% slab. This cess collection is used to compensate States for the revenue loss due to GST rollout. With the GST compensation regime coming to an end in June, it is imperative that States become self-sufficient and not depend on the centre for badging the revenue gap in GST collection.