Finance Minister Arun Jaitley on Thursday hinted at merging 12 and 18 per cent tax rates under GST once revenue collections pick up and said the top 28 per cent slab would be for a "very thin" list of luxury and sin goods.
The Goods and Services Tax (GST), rolled out on July 1, currently has four tax slabs of 5, 12 18 and 28 per cent. There is also a zero per cent tax on certain essential daily use commodities.
Speaking at the HT Leadership Summit, Jaitley said the new indirect tax regime started with multiple rates in order to keep the tax incidence around the same level that existed pre-GST.
Stating that the country would eventually move to a two-tier GST, he said that how fast it could be done would depend on the revenue position of the government.
"We have thinned down the 28 per cent bracket, we can thin down more and it can be at some stage confined to luxury and demerit goods," Jaitley said adding that as GST collections improve, the govt would see if there is a scope for merging 12 and 18 per cent slabs.
He said the merging of 12 and 18 per cent slab would mean some items in 12 per cent bracket will be sent to 5 per cent, resulting in two rates of 5 per cent and another 'X' per cent.
Also, there will be a "very thin" list of items in the highest tax slab of 28 per cent.
"Eventually, that will be the direction. But how fast you can do it will depend on how the revenues pick up," he said.
He said a single rate GST is possible only in countries which have similarly placed population and in a highly differentiated society like India it would have been inflationary.
"Can you have a GST in India where a Mercedes car and a hawai chappal is taxed at the same rate? That's socially not acceptable," Jaitley said.
He said before the implementation of GST on July 1, most of the goods, including geometry box, rubber bands, copy books, were being taxed at 31 per cent.
"So, temporary we parked them at 28 per cent. I had thought it would take a lot more time to rationalise it but most of them we have brought it down to 18 and 12 per cent now. So, we have started the rationalisation ahead of schedule," he said.
Jaitley said there was a need to reduce the compliance burden on small and medium enterprises. Under the GST regime, 95 per cent of tax comes from 4 lakh assessees, who pay their taxes on time.
"The noise comes from several other areas and I think there is a need for the millions (of businesses) who pay the balance 5 per cent tax to actually reduce the compliance burden on them. And I do consider it is a legitimate noise. Therefore, reducing that compliance burden is something that is called for," he said.