Despite the Centre's push to simplify the Goods and Services Tax (GST) structure by eliminating the 12% tax slab, the Group of Ministers (GoM) on GST rate rationalisation remains divided on the proposal. The lack of consensus has stalled progress on GST reform, making Finance Minister Nirmala Sitharaman's intervention crucial in the coming months.
GoM Deadlock Over GST Rationalisation
The six-member GoM, led by Bihar Deputy CM Samrat Chaudhary, includes finance ministers from Uttar Pradesh, Rajasthan, Karnataka, West Bengal, and Kerala. The panel is responsible for restructuring GST rates to simplify taxation and reduce anomalies, but concerns over revenue loss and uneven tax burdens have created a stalemate.
Official sources confirm that Sitharaman is likely to engage with the GoM in April 2025, after the Budget session, to break the deadlock. Her strategic input could be decisive in resolving the ongoing differences among states, some of which strongly oppose removing the 12% GST slab.
Why is the Centre Pushing to Eliminate the 12% GST Slab?
- The 12% GST slab contributes only 5% to India's total GST revenue, making it the least significant among the four primary tax slabs.
- The 18% GST slab dominates revenue collections, accounting for 73% of the total GST revenue, followed by the 28% slab (12.5%) and the 5% slab (8%).
- The government aims to simplify GST into a three-rate structure: 5%, 18%, and 28%, by phasing out the 12% slab.
- Resistance from States: Concerns Over Revenue & Sectoral Impact
While the Centre is eager to remove the 12% slab, some states remain reluctant, citing concerns about:
- Uneven tax burden on industries currently benefiting from the 12% rate
- Potential price increases for essential goods and services
- Revenue losses for state governments that rely on collections from the 12% slab
This policy deadlock has slowed down the Centre's GST rationalisation efforts, even as economists argue that a simplified tax regime could boost consumption, ease tax compliance, and reduce litigation.
FM Sitharaman's Role in Breaking the Impasse
- Sitharaman is expected to meet GoM members in April 2025 to assess their concerns and provide guidance.
- The Finance Minister's direct involvement could help align state and Centre priorities, paving the way for faster tax reforms.
- The government's broader objective is to spur economic growth by optimizing tax rates and improving GST collections.
GST Rationalisation: What Lies Ahead?
With states holding firm on the 12% slab, the next few months will be critical in determining whether the government can move forward with its three-rate GST system. The outcome of Sitharaman's discussions with the GoM will shape the future of India's GST framework, influencing businesses, consumers, and overall economic policy.
Key Takeaways
- Centre wants to eliminate the 12% GST slab to simplify taxation
- States are resisting the move, citing revenue loss concerns
- FM Sitharaman to step in post-Budget to resolve GoM deadlock
- GST rationalisation crucial for boosting consumption & tax efficiency
The coming months will be decisive in shaping India's GST roadmap, with potential reforms that could impact businesses, industries, and consumer spending.
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