A growing clamour for GST rationalisation has the Centre and states trying to find a common ground over the GST roadmap. While the Centre is keen on doing away with the 12 percent GST slab, states on the rate rationalisation panel have, so far, only moved items between the existing rates, government sources said.
“The GoM came to the GST Council with recommendations, suggesting products be moved from one rate to another. But the Centre said that this is not a long-term solution. We need to simplify the rate structure, not just tinker with it,” a senior finance ministry official said. “State finance ministers will have to take a call together. The idea is to simplify rates and make compliance easier.”
After offering an income tax cut, the government's focus has shifted to speeding up long-pending efforts to rationalise the Goods and Services Tax (GST) to further boost consumption and reduce tax-related disputes.
Rationalising the GST structure in India is significant as it may have a more pronounced impact on boosting consumption versus income taxes.
Economists have pointed out that consumption demand is more responsive to indirect taxes than direct taxes thereby calling for simplifying the GST structure to spur more spending by the public.
Streamlining GST
Efforts to simplify the GST structure have gained momentum with the Centre pushing for a three-rate system by phasing out the 12 percent slab. This would leave only the 5 percent, 18 percent, and 28 percent tax rates. However, the lack of consensus among states is delaying the process.
According to sources, the Group of Ministers (GoM) on GST rate rationalisation, chaired by Bihar Deputy Chief Minister Samrat Chaudhary, is likely to push for gradually shifting items from the 12 percent slab to either 5 percent or 18 percent to achieve the objective of simplification without major revenue loss.
“The primary objective is simplification and dispute resolution. Many disputes arise because similar items are placed in different slabs. The rationalisation exercise needs to be revenue-neutral, which means some items will have to move to higher slabs while others may move to lower ones,” another government official told Moneycontrol.
To be sure, GST does have a few more rarely-used rates such as 3 percent and 0.25 percent for certain precious metals like gold and non-industrial diamonds.
Given the lack of consensus among the members of the rate rationalisation panel, the Centre intends to reach out to finance ministers of each state in a bid to convince them to prioritise reducing slabs over tinkering with rates.
“The finance ministers of the states and the Centre will now have to take the call,” the official cited above said.
Sources said that getting states on board will require careful negotiations, as some categories may face rate hikes while others may see reductions
The central government in fact has factored in the possible rationalisation of GST in its estimates for FY26.
GST collections are expected to growth at 10.9 percent for 2025-26, similar to the current fiscal. This cautious target reflects expectations of some rationalisation in the GST structure.
“The 12 percent GST slab contributes only 5 percent to total GST revenue, making it the lowest revenue generator among the four slabs. In comparison, the 18 percent slab dominates collections, accounting for 73 percent of total revenue,” a third official had told Moneycontrol earlier.
As efforts to rationalise rates continue, the Centre is determined to push for a simpler GST structure that will not only ease compliance for businesses but will also spur consumption without compromising revenue targets.
Constituted in 2021, the GoM on rate rationalisation is tasked with reviewing and recommending changes to the slabs under the GST, suggesting suitable tweaks to correct instances of inverted duty structure, and propose merger of rates to simplify the system.
The GoM’s final recommendations will play a key role in rationalising the indirect tax regime, which was launched in 2017.
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