New Delhi, Feb 22 (IANS): GST rates in the country are unlikely to witness any change during the extended run of the pandemic as the Centre and states have agreed not to disturb the indirect tax structure in wake of the current economic situation where growth has contracted and industrial activity is just about reviving after coming to a standstill during the lockdown.

Government sources privy to the development said that there would not be any increase in GST rates or movement towards converging GST to a three rate structure even during the major part of the next financial year. Only small steps may be taken by the GST Council to correct the inverted duty structure till the time the economic health of the country improves, they said.

The GST Council, in its meeting in August last year, just focused on the mechanism of compensation to states for revenue forgone due to the switchover to GST. Sources said even at that meeting, it was a unified view that any review of GST rates should not be considered at this juncture. The same view also got strengthened in the parleys between the Centre and the states while deciding the compensation mechanism.

With the Centre now indicating that there would be a GST compensation shortfall even in FY22, this matter would hold prime concern of the GST Council when it meets next sometime next month or later. This would push back any talks on revising the GST rates.

But sources indicated that the Council may in phases take steps to correct the inverted duty structure, especially in sectors such as fertilisers, steel utensils, solar modules, tractors, tyres, electrical transformers, pharma, textile, fabric, railway locomotives, among other goods.

Inverted duty refers to tax rates on inputs being higher than those levied on finished products. This results in higher input credit claims by goods besides several administrative and compliance issues.

Currently, while duty on imported tyre is 10 per cent, its inputs, ie rubber, attract 20 per cent duty. Similarly, solar modules does not attract any duty while its components attracts 5-10 per cent duty.

"There is no question of raising GST rates to augment state resources and reduce the burden on the Centre for GST compensation at this juncture. So, minor corrections in duty structure may be carried out by the Council that got delayed last year due to Covid pandemic. Also, the Council may take further steps to improve tax compliance by further simplifying the procedures," said a top government source.

After falling drastically during the period of lockdown, GST collections significantly improved over past few months, as economy recovers. In fact, the GST collections in January has reached all time high levels of Rs 1.20 lakh crore.

But the government remains cautious as another wave of Covid may disturb the progress made so far. It is with this in mind, Finance Secretary Ajay Bhushan Pandey had earlier stated that the GST estimate for FY22 has been decided keeping in mind the pandemic.

The Budget 2021-22 has pegged Centre's revenue from GST at Rs 6,30,000 crore, a 22 per cent growth over the revised estimate for FY21 at Rs 5,15,100 crore. It is lower than the FY21 budget estimate of Rs 6,90,500 crore.