GST Reforms: GoM supports two-slab structure, but flags the need to address revenue loss
NEW DELHI, AUG 21 : In a significant move in the process of further simplifying India’s tax framework, the Group of Ministers (GoM) has reportedly given its consent for the Goods and Services Tax (GST) rate rationalisation. All the ministers of the participating states at the GoM meeting held on Thursday have accepted the Centre’s proposal to eliminate the 12% and 28% tax slabs—and introduce the two-slab structure of 5% and 18% GST.
Chandrima Bhattacharya, Finance Minister, West Bengal confirmed to media after the GoM meeting that all the states are in favour of centre’s proposal as this is a ‘people friendly’ decision. States have asked for an estimate on revenue loss. Proposal will be put up before next GST council meeting.
“All the states are pro people, there is no doubt about it. They (two-slab rate) are pro people. But when the states lose their revenue that also ultimately goes back to the common people, so that has to be looked into,” added Bhattacharya.
Chaired by Bihar Deputy Chief Minister Samrat Choudhary, the six-member GoM includes finance and revenue ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, and Kerala.
Under the Center’s proposed revamp, essential and merit goods will attract a 5% GST rate, while most other goods and services will fall under the 18% standard rate. Notably, nearly 99% of items currently in the 12% bracket will come under 5%, and a large part of those under 28% will move to 18%.
Suresh Kumar Khanna, Finance Minister of Uttar Pradesh, said, “40% GST on luxurious and sin goods have been proposed. But it’s too early to say anything on revenue loss. “
As previously proposed, for luxury and demerit, or “sin,” goods like pan masala, tobacco products, a special 40% levy is expected to remain in place. Some states, including West Bengal, have even proposed imposing an additional duty above 40% to maintain the existing tax burden on ultra-luxury items like high-end cars. However, West Bengal has suggested a need for amendment of certain sections to ensure additional tax can be levied on sin items.
Prime Minister Narendra Modi in his Independence Day speech announced GST reforms to be implemented by Diwali. Thereafter, the Finance Ministry proposed the two-slab tax structure of GST, alongside removing cess.
Finance Minister Nirmala Sitharaman, who addressed the GoM on Wednesday, asserted the need for the rationalisation to provide significant relief to the common man, farmers, the middle class, and MSMEs by promoting a transparent and growth-oriented tax regime.
There was a two-day GoM meeting in New Delhi on August 20 and 21, to discuss GST on insurance, removal of compensation cess and rate rationalisation.
The GoM on Wednesday also proposed to exempt GST on individual health and life insurance premiums—a change estimated to incur a revenue loss of Rs 9,700 crore annually. While the participating states were in favour of the suggestion, they demanded the need for mechanisms ensuring insurers pass on the benefit to policyholders and also to ensure that the revenue loss for the loss could be minimised.
The GoM’s recommendations will now be presented to the GST Council at its next meeting, expected in September.
-PTI
