PTI Chennai

The Centre is likely to push for a 5 per cent tax on EVs when its ambitious overhaul of the Goods and Services Tax (GST) to lower tax rates on daily use items ranging from butter to electronics is considered by the all powerful GST Council in a two-day meeting starting Wednesday.

The Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising ministers from all states, will discuss the Centre's 'next-gen' GST reform proposal of having just two tax rates of 5 and 18 per cent by moving products from the current 12 and 28 per cent slab to lower rates. A special 40 per cent rate has been proposed to be levied on select few items.

While the pruning of the tax slabs and the resultant expected fall in prices have been welcomed, opposition ruled states are seeking compensation for any loss of the revenue that may occur because of the rejig.

A 4-tier GST structure of 5, 12, 18 and 28 per cent was implemented from July 1, 2017, when the Centre and states agreed to subsume most of their taxes like excise duty and VAT into one uniform tax. 

A compensation cess in the range of 1 to 290 per cent is levied on luxury and demerit goods to create a revenue pool for compensating states for the loss of revenue occurring from the exercise.

However, the compensation mechanism was for initial 5 years ending June 2022.

Prime Minister Narendra Modi had in his Independence Day speech on August 15 unveiled the plan for GST reforms. Shortly thereafter the central government shared a blue print of the planned reform with a Group of Ministers (GoM) from different states for initial vetting.

The GoM has consented to Centre's proposal of doing away with the 12 and 28 per cent slabs, and reducing tax rates to benefit common man. Its recommendations are to be considered by the Council on September 3 and 4.

While broadly agreeing with the slab changes, the GoM has favoured charging electric vehicles priced up to Rs 40 lakh with an 18 per cent GST, sources aware of the matter said. The Centre, however, is keen to push EV adoption and favours a 5 per cent rate and the same stance will be pushed in the Council meeting, they said.

Most of the common use food items like ghee, nuts, drinking water (20 litre), non-aerated drinks, namkeen; certain footwear and apparels; medicines and medical devices are likely to move from 12 per cent to 5 per cent tax slab. Common use items ranging from pencils, bicycles, umbrellas to hair pins may also move to 5 per cent slab.