Big Move Toward Simplified Taxation
In a significant step toward tax simplification, the Central government is preparing to propose a shift from the current four-tier GST structure to a three-slab format. This move, if approved, will eliminate the 12% slab and retain the 5%, 18%, and 28% rates. The proposal is likely to be taken up in the upcoming GST Council meeting expected by early July.
Rationale Behind the Reform
According to sources, the Centre’s decision is backed by sustained GST collections of over ₹2 lakh crore per month. The government believes the 12% slab has lost its utility, and consolidating rates can streamline compliance, reduce disputes, and improve overall efficiency. Essential items may shift to 5%, while less sensitive products could be taxed at 18%.
What Happens to Items Under 12% GST?
Products currently in the 12% bracket include consumer staples like cheese, jam, pasta, packaged water, furniture, jute bags, bicycles, and mid-range services like certain hotel stays and non-economy air travel. Shifting these to 5% or 18% could impact prices and tax revenue, a concern raised by experts.
Expert Cautions and Suggestions
Tax experts advise caution. Saurabh Agarwal from EY warns of potential inflationary effects and classification issues during the transition. Clear guidelines and a phased approach are needed. Brijesh Kothary of Khaitan & Co suggests that bringing items like petroleum, electricity, and natural gas under GST, along with reforms in input tax credit (ITC) and dispute tribunals, can complement this change.
Consensus is Key
Any GST reform must be approved by the GST Council, comprising Union and state finance ministers. While the Centre supports the idea, it must gain full consensus. The Group of Ministers on rate rationalization has yet to formally back the proposal, though it has been discussed earlier.
As GST nears its 8th anniversary in July 2025, this reform may mark a new phase in India’s indirect tax journey.
