With most states on board to raise revenue so that they do not have to rely on the Centre for compensation, the GST Council is expected 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 at its meeting next month, according to sources.
As per sources, in order to increase income, the Council may opt to reduce the list of exempt products by transferring some non-food items to the 3% tax bracket.
According to sources, negotiations are underway to raise the 5% slab to either 7%, 8%, or 9%; a final decision will be made by the GST Council, which includes finance ministers from both the Centre and the states.
Although different possibilities are being considered, the Council is expected to agree on an 8% GST (Goods and Services Tax) for the majority of commodities that presently receive a 5% fee.
Essential commodities are either exempted or taxed at the lowest rate under GST, whilst luxury and demerit items are charged at the highest rate. Luxury and sin items are subject to an additional cess on top of the highest 28 per cent slab. This cess is collected to reimburse states for revenue losses caused by the GST rollout.
With the GST compensation scheme about to expire in June, states must become self-sufficient and no longer rely on the Centre to bridge the income shortfall in GST collection.