The Group of Ministers (GoM) on GST rate rationalisation has agreed to the Centre's proposal for a simplified two-slab structure of 5% and 18%, replacing the current four-tier system. The panel, headed by Bihar Deputy Chief Minister Samrat Choudhary, has also endorsed the removal of the 12% and 28% slabs, paving the way for one of the biggest reforms in the GST framework since its rollout in 2017.
New 40% Slab for Luxury and Sin Goods
Alongside the two-slab structure, the Centre has proposed a new 40% GST slab for ultra-luxury and sin goods such as tobacco, pan masala and luxury cars. Confirming the move, Uttar Pradesh Finance Minister Suresh Kumar Khanna said the new rate is aimed at ensuring higher taxation on products with a negative social impact and goods consumed by the wealthy.
However, several state finance ministers expressed concerns over revenue losses that may arise from merging the existing slabs into just two categories. To address this, states have suggested an additional cess over and above the 40% slab, ensuring that the overall tax incidence remains unchanged.
States Push for Safeguards
West Bengal Finance Minister Chandrima Bhattacharya argued that the Centre's proposal did not spell out how much revenue the states and the Centre would lose after the new slabs take effect. She called for an amendment to Section (1) of the GST Act to allow a levy above the 40% cap, ensuring states can safeguard their collections once the GST compensation cess comes to an end.
Similarly, Telangana Deputy Chief Minister Mallu Bhatti Vikramarka, who is part of the GoM, supported maintaining current effective tax levels on sin and luxury goods. He suggested that any additional revenue raised should directly go to states to help offset their losses.
Why States Are Cautious
States are heavily reliant on GST revenues, which make up more than 40% of their tax collections. Many states have already complained of fiscal stress following the end of the five-year compensation period in 2022. With the Centre's rationalisation plan set to reduce slabs, ministers fear a reduction in state tax receipts, making luxury and sin goods a key source for bridging the gap.
Next Steps
The GoM's recommendations will now be submitted to the GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising all state finance ministers. The Council is expected to deliberate on the proposals in its next meeting, likely in September or early October.
If approved, the move would mark a major simplification of India's GST system, while also sparking fresh debate on balancing tax reform with state revenue autonomy.
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