Centre's GST rate rationalisation proposal comes up before Group of Ministers for approval

Finance Minister Sitharaman addressed the Group of Ministers (GoMs) constituted by the GST Council on Compensation Cess, Health & Life Insurance, and Rate Rationalisation at Vigyan Bhawan, New Delhi.

A six-member Group of Ministers (GoM) of state finance ministers, chaired by Bihar's Deputy Chief Minister Samrat Choudhary, is meeting on August 21 to review Centre's rate rationalisation proposal to reduce tax slabs to 5 and 18 percent, and will be forwarding its recommendations to the GST Council.

The Group of Ministers on rate rationalisation includes ministers from Kerala, Uttar Pradesh, Rajasthan, West Bengal, Bihar, and Karnataka. The panel will discuss the Centre's proposal of 'merit' and 'standard' classification of goods and services, along with the two proposed slabs of 5 and 18 percent as rates. Aside of that, a 40 percent rate has been proposed on select items, including sin goods. Most of the items in the 12 percent bracket are being reclassified to 5 percent GST rate, most items that attact 28 percent GST will be coming down to 18 percent, as per the proposed rationalisation.

On August 20, Finance Minister Nirmala Sitharaman met the Group of Ministers (GoMs) on compensation cess, health and life insurance, and rate reforms, and explained the necessity for the tax reforms. "The rate rationalisation will provide greater relief to the common man, farmers, the middle class and MSMEs, while ensuring a simplified, transparent and growth-oriented tax regime," FM Sitharaman said.

This is the first time that the Centre has proposed a GST rate rejig, as until now, the rationalisation had been driven largely by the GoMs and the GST Council.

Previously, the rate rationalisation GoM was mandated to suggest changes in tax slabs and remove duty inversion in certain sectors. The Centre’s proposal, once approved by the GoM, will be placed before the GST Council during its next meeting, scheduled in September, which will be attended by ministers from Centre and all states.

UBS Securities, in a recent note, said that the proposed GST reform is expected fuel India's consumption economy. "...this potential policy stimulus along with personal income tax relief ($15 bilion), front-loading of rate cuts (100 bps YTD), softer inflation and improved credit availability should help buoy household consumption over the next 2-3 quarters," said Tanvee Gupta Jain, Chief India Economist at UBS Securities.