The Group of Ministers (GoM) on Goods and Services Tax (GST) rate rationalisation is likely to push for phasing out the 12 percent tax slab by gradually shifting items to either the 5 percent or 18 percent slabs to simplify the tax framework and ease compliance for businesses, people familiar with the development said.
The gradual elimination of the 12 percent slab will consolidate the GST system into a three-tiered structure of 5 percent, 18 percent, and 28 percent rates.
“This is a strategic alternative to the lack of consensus on merging the 12 percent and 18 percent slabs, which has been under discussion for some time,” one of the people cited above said, requesting anonymity.
The 12 percent slab is likely to be rendered redundant, the second person said, also declining to be named.
With India’s indirect tax system overhaul now in its eighth year, policymakers are under pressure to rationalise the GST structure. Experts expect the simplification to reduce the compliance burden and boost tax collections.
“The phasing out the 12 percent GST slab and shifting items to either the 5 percent or 18 percent slabs represents a significant step toward simplifying the tax structure. This move could reduce compliance complexity and make the system more transparent, which aligns with the broader objective of streamlining GST. However, it may also lead to pricing adjustments for affected goods, as shifting items into higher tax slabs could increase the cost to consumers, while a move to a lower slab might provide some relief. The impact on businesses will vary based on which slab their products are reassigned to, potentially affecting profit margins and consumer demand,” Rajat Mohan, Executive Director of tax consultancy firm MOORE Singhi, told Moneycontrol.
The GoM on rate rationalisation, chaired by Bihar Deputy Chief Minister Samrat Chaudhary, is expected to submit its recommendations by October, with the GST Council likely to discuss the suggestions in the meeting in November.
“While moving items out of the 12 percent slab is the way forward, it will take time, as states will carefully examine the revenue implications before agreeing,” the person said.
The GoM has discussed rate adjustments on over 100 items, including reducing taxes on certain goods from 12 percent to 5 percent to provide relief to consumers, according to some reports. However, merging the 12 percent and 18 percent slabs has been met with resistance, with some arguing that disrupting the current four-tier system could destabilise revenue streams.
Last month, West Bengal Finance Minister Chandrima Bhattacharya, a member of the GoM, said, “The focus is on tweaking tax rates on certain items, including bringing down rates from 12 percent to 5 percent. However, there is no consensus on merging slabs.”
The six-member GoM, chaired by Chaudhary, also includes Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Services Minister Gajendra Singh, Karnataka Revenue Minister Krishna Byre Gowda and Kerala Finance Minister K N Balagopal.
The GoM was reconstituted on November 1, 2023, to examine the GST rate structure. The group will meet again on October 20, 2024, to continue deliberations on rate rationalisation.
“Removing the 12 percent GST slab without significantly affecting this average rate is challenging. The GoM may aim to help the common man by reducing GST rates as much as possible, but it also needs to maintain GST revenue. Given the year-on-year increase in GST collections, the GoM might have some flexibility to manage this. However, more details will be available after the next meeting on October 20, 2024,” Sanjay Chhabria, Lead at tax consulting firm Nexdigm, told Moneycontrol.
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