Union Home Minister Amit Shah is set to initiate discussions with all stakeholders, including states and central ministries, to build consensus for major changes in the Goods and Services Tax (GST) system.
The primary objective is to resolve contentious issues and accelerate the process. A key proposal, long pending, is the abolition of the 12 percent tax slab. This change would shift some goods to the 5 percent slab and others to the 18 percent slab, simplifying the complex multi-rate structure of GST. However, this could lead to a revenue loss of around Rs 70,000 to Rs 80,000 crore for both central and state governments combined.
According to a report in The Indian Express, with the GST system stabilizing after eight years, this change will not be easy. No state, whether opposition or BJP-ruled, is likely to readily accept this proposal. The potential revenue loss for the government is a major concern. In light of this risk, Amit Shah plans extensive discussions with the states. Last week, he also held talks with finance ministry officials.
Demands from Various States
Currently, the GST system has multiple rates, such as 0%, 5%, 12%, 18%, and 28%, in addition to a cess on luxury items and special provisions for precious metals. The proposal to simplify GST rates is not appealing to several states. For instance, two non-BJP ruled states are demanding a reduction of GST on life and health insurance premiums from 18 percent to 5 percent, while some states are proposing to make it completely tax-free.
Discussions for the Past Four Years
Major changes to GST cannot be passed in a single GST Council meeting. Since these decisions can also involve voting, broad consensus is essential. Discussions on further simplifying GST rates have been ongoing for the past four years. In September 2021, the Council acknowledged the need for simplification, but in February 2024, a proposal came to retain the 12% slab, which was contrary to the goal of reducing slabs. This will now be reconsidered.
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Items to be Affected
The 12 percent slab includes packaged food products (condensed milk, dry fruits, sauces, fruit juices), household items (cotton, jute, bags, furniture, sewing machines), and medical products (medical oxygen, bandages, diagnostic kits). According to 2023-24 data, 70-75 percent of GST revenue comes from the 18 percent slab, while the 12 percent slab contributes only 5-6 percent.