GST Rate Rationalisation: A Step Towards Simplicity?
The Indian GST system, introduced in 2017, was meant to simplify indirect taxation. However, its multi-tier rate structure—comprising 5%, 12%, 18%, and 28% slabs—has led to complexities. Recognising these challenges, the GST Council has initiated discussions to rationalise rates and streamline compliance.
Current Status of GST Rate Rationalisation
A ministerial panel under the GST Council has been actively evaluating whether to move items between tax slabs or merge certain slabs. While there was a proposal to consolidate the 12% and 18% slabs into a single 15% rate, no consensus has been reached due to concerns over revenue loss.
- Why not merge 12% and 18% slabs?
- The 18% slab contributes around 70-75% of GST revenue.
- The 12% slab contributes just 5-6%.
- Moving items from the 18% to 15% slab could lead to revenue loss exceeding potential gains.
- Some essential goods, like pharmaceuticals, could see price hikes if shifted to a higher rate.
For now, the panel has decided to retain the 12% slab but will continue discussions in upcoming meetings.
Challenges in GST Rate Rationalisation
- Revenue Impact: Any reduction in GST rates must ensure minimal revenue loss for both the Centre and states.
- Sector-Specific Concerns: Some industries, such as pharmaceuticals and insurance, may face adverse impacts if tax rates are adjusted without proper evaluation.
- Balancing Simplification & Equity: While fewer slabs would simplify compliance, it must be done without disproportionately affecting essential goods and services.
Potential Outcomes of GST Changes
The following possibilities have been considered:
| Proposed Change | Expected Impact |
|---|---|
| Merging 12% & 18% slabs into 15% | Reduces slab count but may raise tax on essential goods |
| Keeping 12% slab with modifications | Maintains revenue balance but keeps complexity |
| Moving some 12% items to 18% or 5% | Revenue neutrality, but sectoral concerns persist |
| Reducing 18% slab items to lower rates | Can benefit consumers but risks revenue loss |
The GST Council’s deliberations are expected to continue, with further refinements likely in the next few months.
Final Thoughts
GST rate rationalisation is a long-term goal to make tax compliance easier for businesses while ensuring stable revenue collection. However, balancing simplification with fiscal responsibility remains a challenge. The upcoming GST Council meetings will be crucial in determining how and when these changes take shape.