After rationalising income tax rates in the Union Budget, the government may also be looking at rationalising the Goods and Services Tax (GST) rates, sources told Moneycontrol. The process has already begun, with the Centre working towards bringing all states on board, sources said.
"The process is already underway to rationalise GST, and we want to ensure a consensus among states before finalising any changes," a source aware of the matter said on condition of anonymity.
The move follows Finance Minister Nirmala Sitharaman’s recent Budget announcement on February 1, where she offered significant relief to the middle class by exempting individuals earning up to Rs 12 lakh from income tax while also tweaking tax slabs for others. The government is set to forego Rs 1 lakh crore in revenue due to these changes, the FM noted in her speech.
The government has factored in a GST growth of 10.9 percent for the coming fiscal, higher than 10.1 nominal growth projected in the Budget. “The GST growth estimate is not conservative, as rationalisation will also likely have an impact,” the person aware of the development said.
The government had set up a ministerial panel, the Group of Ministers (GoM), to examine GST rate rationalisation. In December, the panel reportedly reached a consensus on rejigging tax rates on around 150 items.
The GST rate structure has undergone multiple revisions since the indirect tax regime was rolled out in July 2017. Initially designed with four primary tax slabs – 5 percent, 12 percent, 18 percent, and 28 percent – various items have seen rate adjustments over the years to address industry concerns and revenue considerations.
Economists have long advocated for a simpler GST structure, arguing that multiple tax slabs create classification disputes and compliance challenges. Industry leaders also expect a rationalisation move to improve tax efficiency and ease of doing business.
The government’s recent decision to cut customs duties to bring down tariffs is also seen as a step towards making the tax regime more business-friendly and globally competitive.
The GST Council, which comprises representatives from the Centre and states, is expected to deliberate on the final roadmap for rate rationalisation in upcoming meetings.
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