The Central government is accelerating efforts to simplify the Goods and Services Tax (GST) structure, but a lack of consensus among states is delaying the process. While the Centre is keen to eliminate the 12% GST slab, state representatives on the GST rate rationalisation panel have so far focused only on shifting products between existing slabs.
Push for a Three-Tier GST Structure
Currently, India follows a four-tier GST system (5%, 12%, 18%, and 28%), with additional lower rates (0.25% and 3%) for select goods like gold and diamonds. The Centre is advocating for a three-tier system by phasing out the 12% slab, leaving only 5%, 18%, and 28% as the standard rates.
A senior finance ministry official emphasized the need for simplification rather than incremental changes, stating:
"Moving products between existing slabs is not a long-term solution. We need to simplify the rate structure to ease compliance and reduce disputes."
State Concerns Over Revenue Impact
Despite the Centre's push, states remain hesitant, fearing potential revenue losses from the restructuring. The Group of Ministers (GoM) on GST rate rationalisation, chaired by Bihar Deputy CM Samrat Chaudhary, is reportedly considering a gradual approach-moving items from 12% to either 5% or 18%, rather than eliminating the slab immediately.
Officials noted that revenue neutrality is a key goal, meaning that while some items may see a lower tax rate, others could be moved to higher slabs to compensate.
GST Rationalisation and Economic Growth
The move to streamline GST is seen as a way to boost consumption, particularly after the Centre's recent income tax cuts. Economists argue that consumption demand is more responsive to changes in indirect taxes than direct taxes, making GST rationalisation a key tool for stimulating spending.
The Finance Ministry has already factored in GST rationalisation in its fiscal estimates, projecting 10.9% growth in GST collections for FY26, mirroring the current year's pace.
Road Ahead: Negotiations with States
To push through the reforms, the Centre plans to engage state finance ministers directly, urging them to prioritise simplification over rate tinkering. However, given the diverse economic interests of different states, careful negotiations will be required.
The GoM's final recommendations will be crucial in shaping the future of GST, as it seeks to correct the inverted duty structure, merge tax slabs, and reduce compliance burdens for businesses.
As discussions continue, businesses and consumers alike are watching closely to see whether GST rationalisation will finally move from debate to implementation in the coming months.
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