GoM recommends scrapping of 12%, 28% GST slabs

The Group of Ministers (GoM) on goods and services tax (GST) rate rationalisation agreed on Thursday to the Union government’s proposal to scrap 12 per cent and 28 per cent GST slabs and consolidate them with lower rates of 5 per cent and 18 per cent, a move that would simplify the indirect tax structure and make a host of services and items used by the common people cheaper.

The decision was taken at the meeting of the six-member GoM headed by Bihar Deputy Chief Minister Samrat Choudhary in New Delhi.

“The proposal to end the 12 per cent and 28 per cent GST slabs was discussed and supported. We have made our recommendations in favour of scrapping these two slabs,” Choudhary, who is the convenor of the panel, told reporters.

As part of the proposal, around 99 per cent of the items currently taxed at 12 per cent will be moved to the lower tax slab of 5 per cent, while 90 per cent of goods and services under the 28 per cent rate will be shifted to the 18 per cent slab.

However, the panel is also likely to recommend a new tax slab of 40 per cent. This will be applicable on luxury items and sin goods or the items which are harmful to society or individual health like tobacco products and aerated drinks. Luxury cars are also proposed to be taxed at 40 per cent.

GoM member and West Bengal Finance Minister Chandrima Bhattacharya proposed additional levy on the top of 40 per cent GST on sin goods and luxury items, to maintain the current tax incidence. At present, a cess ranging from 5-96 per cent is levied on sin goods in addition to 28 per cent GST.

Other members of the GoM are Karnataka Revenue Minister Krishna Byre Gowda, Kerala Finance Minister K N Balagopal, UP Finance Minister Suresh Kumar Khanna and Rajasthan Health Minister Gajendra Singh.

Choudhary said some states have raised the issue of revenue loss and demanded continuation of compensation. “Everyone made suggestions on the proposals put forth by the Centre. Some states had observations, and the matter has been referred to the GST Council, which will take the final decision,” he said.

The GoM is likely to submit its recommendation to the GST Council during its meeting slated in September. Chaired by the Union finance minister and having representation from all states, the Council is the apex body to take decisions on GST-related matters.

According to analysts, the proposed changes are unlikely to have any major impact on the government finances as around 70 per cent of GST collection comes from 18 per cent slab, which is not proposed to be changed.

“The revenue impact of GST cuts may be limited, particularly because reduced prices will also spur the demand,” said Pratik Jain, Partner, Price Waterhouse & Co LLP.

Saurabh Agarwal, Tax Partner, EY India, said the proposed changes in GST rates would strengthen India’s economy, which is consumption-driven.

“However, for these changes to truly deliver, we must proactively address a few critical areas. The most immediate is the inverted

duty structure which may arise on account of movement to lower tax slabs,” Agarwal said.

If left unresolved from a supply chain perspective, it could create working capital strain and prevent the benefits of lower rates from reaching consumers, he added.

Mahesh Jaising, Partner and Leader – Indirect Tax, Deloitte India, said: “With rate changes, industry awaits clarity and guidelines on areas of passing on the benefits.”