MUMBAI | NEW DELHI: The government may consider collapsing the five goods and services tax (GST) slabs into two and address inverted duty structure distortions in order to simplify the system and combat a shortfall in collections. These were among the recommendations made by a committee of officials from the Centre and the states on GST revenue augmentation, said people with knowledge of the matter.According to the presentation, there could be a shortfall of Rs 63,200 crore in GST collections in the current financial year and as much as Rs 2 lakh crore by 2021.The panel suggested two slabs of 10% and 20%. Alternatively, some goods could be moved from the 18% slab back to 28%, the panel said in a presentation to Bihar deputy CM Sushil Modi in Bengaluru on Monday. The GST Council had, at its recent meeting, asked Modi to look into revenue augmentation measures.Modi, Bihar finance minister and head of the group of ministers (GoM) on integrated GST (IGST), had ruled out the possibility of changes to the rate structure at a time when revenues have moderated due to the economic slowdown.“I want to assure you that not a single state... (or) the Union government are ready to raise tax rates,” Modi had said.The panel highlighted the issue with 23 items besides some miscellaneous ones to drive home the point about the need to correct inverted duty structure distortions that mean inputs are taxed at a higher rate than finished products.Items such as mobile phones, pharmaceuticals, manmade yarns, readymade garments, fertiliser, fabrics, and renewable energy equipment in the 5% and 12% slabs face an inverted duty structure, which has led to refund outgo of as much as Rs 20,000 crore on account of input tax credit.“There is a problem of inverted duty structure in a few sectors such as cell phones, minerals, fertilisers, textiles, shoes etc where the output is typically taxed at 5% or 12% whereas many inputs and services are taxed at 18%,” said PwC indirect taxes leader Pratik Jain.The committee suggested reversing the reduction of GST on certain items to 18% from 28%, withdrawing the exempt status of certain items including high-end healthcare and education besides raising the rate on precious metals such as gold to 5% from 3%. The GST Council had cut rates on a number of consumer durables and paints to 18% from 28% in July 2018 in a bid to lower prices and boost consumption.“The states expect a material revenue shortfall and recommendations for revenue augmentation broadly relate to rate-rationalisation measures and measures related to mitigating leakage or evasion of revenue,” said Uday Pimprikar, national leader, indirect tax services, EY. While an increase in GST rates could help, it may not be enough due to the macroeconomic situation, some experts said.“While the present rates in the GST regime on goods are undoubtedly lower compared to both the pre-GST scenario and the initial rates in the GST regime, the recent slowdown in several sectors is also a key reason for the collections not being on target,” said Deloitte India partner MS Mani.The recommendations could be discussed at the next council meeting, said the people cited above.Tax experts said the government may need to balance these measures with other steps.“A tax rate policy should not incentivise evasion—for instance, a 28% rate imposed on a B2C (business to consumer) supply or other supplies where input tax credits are denied, is not advisable,” said Pimprikar.Jain said the inverted duty structure could be addressed by increasing rates on finished products, reducing it on inputs or ensuring that input credit is paid fully and quickly.However, increasing the rate on end products may not be desirable, particularly in the current economic environment, Jain said.