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TO IMPART urgency to the process of overhauling the Goods and Services Tax (GST) regime, Union Home Minister Amit Shah is set to initiate discussions with all stakeholders — states as well as Central ministries — to build consensus and resolve contentious outstanding issues.
Amongst the many proposals on the table, the one to do away with the 12 per cent slab has been hanging fire for long. This involves shifting some items to the lower 5 per cent slab, and some others to the higher 18 per cent slab. Though this would simplify the multiple rate structure, it is estimated to result in significant revenue losses of Rs 70,000-80,000 crore for the Centre and states combined, top sources said.
“Any tweaks in GST structure right now, especially when it has stabilised after eight years of rollout, are not going to be easy. A lot of factors will be in consideration, and revenue loss is a big factor. No state, whether Opposition or BJP, will accept the proposals easily. Therefore, the Home Minister plans to hold discussions with states beforehand,” the source told The Indian Express.
The sources said that the Home Minister has already held discussions with Finance Ministry officials last week.
“There are certain important and sensitive decisions coming up and the states have to be convinced. So it’s important the Home Minister is in the loop. Whenever there’s a third-party evaluation beyond the Finance Minister, the Home Minister is roped in,” said a source.
GST, the biggest indirect tax reform in recent years, was introduced in July 2017. But it is riddled with a multiplicity of rates — zero, 5 per cent, 12 per cent, 18 per cent and 28 per cent, in addition to the cess rates for luxury and sin goods, and special carve outs for precious metals.
This rate rationalisation has not been palatable to many states, both BJP-ruled and Opposition. Several attempts to simplify or reduce rates on consumer-focused items were stalled earlier in the GST Council, the overarching federal body with members from both the Centre as well as states.
Two Opposition-ruled states also demanded the GST rate on life and health insurance premiums to be cut to 5 per cent from 18 per cent now; several others wanted no tax on premiums.
Sources said Shah’s intervention was required to resolve “politically sensitive issues” and “those that need support from states”. A major overhaul in GST will not go through in a single meeting of the GST Council; it will require a broad consensus as the decisions may go for a vote within the Council, the sources said.
Describing the presence of the Home Minister as “normal”, the source said there have been instances in the past when he was part of the meetings. For instance, he was involved in discussions on disinvestment. He has also chaired meetings on price rise of staple food items in the past. “He has been involved especially in politically sensitive decisions,” the source said.
The GST rate rationalisation has been talked about for over four years now. In its 45th meeting held in September 2021 in Lucknow, the GST Council discussed the need to undertake rate rationalisation including correction of inverted duty structure, to reduce classification related disputes, and enhance GST revenues. The Council then approved changes in GST rates to correct inverted duty structure in many sectors, including textiles and footwear that were brought into effect from January 2022.
Earlier this year in February, The Indian Express had reported the ministerial panel on rate rationalisation had held threadbare discussions on the items in each of the key slabs. But even after the detailed exercise, the 12 per cent GST slab was proposed to be retained by the panel, along with three key slabs. This was flagged in internal discussions as being inconsistent with the objective of reducing the number of slabs. The panel had then decided to revisit the matter, and hold more deliberations.
A three-slab proposal by doing away the 12 per cent slab would involve a careful consideration while shifting items in that tax slab. As of now, the 12 per cent slab includes packaged food items such as condensed milk, nuts, dates, sausages, fruit juices; household goods such as cotton, jute handbags, furniture, sewing machines, some textile products, stationery; and medical items such as medical grade oxygen, gauze, bandages, diagnostic kits.
As per government data for 2023-24 shared in Parliament last year, around 70-75 per cent of the GST revenue came from 18 per cent tax slab, while the 12 per cent slab contributed 5-6 per cent of the GST collections. The lower 5 per cent slab accounted for 6-8 per cent of the GST, while the higher 28 per cent slab’s share was 13-15 per cent.
In its 55th meeting held in Jaisalmer in December 2024, the GST Council held discussions on lowering rates on several items. However, it decided to defer a key decision to lower the tax rate on health and life insurance premiums.
The GoM on rate rationalisation had sought more time to discuss the proposal to tweak rates on as many as 148 items, which is expected to come up for discussion in the next meeting of the GST Council.
