GST Overhaul Discussions
The Union Home Minister of India, Amit Shah, has recently taken charge of initiating talks with all stakeholders to expedite reforms in the Goods and Services Tax (GST) regime. This move aims to build consensus on several contentious issues, including the proposal to eliminate the 12 per cent GST slab. The discussions involve both the Central ministries and state governments, reflecting the complexity and political sensitivity of the tax structure overhaul.
Current GST Structure and Challenges
The GST system, introduced in July 2017, features multiple tax slabs – zero, 5 per cent, 12 per cent, 18 per cent, and 28 per cent, along with cess on luxury and sin goods. This multiplicity has complicated compliance and administration. Efforts to rationalise rates, especially reducing the number of slabs, have faced resistance from states due to potential revenue losses and political disagreements.
Proposal to Remove the 12 Per Cent Slab
A key proposal under consideration is the removal of the 12 per cent tax slab. Items under this slab include packaged foods, household goods, some textiles, and medical supplies. The plan is to redistribute these items between the 5 per cent and 18 per cent slabs to simplify the tax structure. However, this change could lead to an estimated revenue loss of Rs 70,000-80,000 crore for the Centre and states combined, making it a sensitive issue.
Political and Administrative Dynamics
The GST Council, the federal body governing GST, comprises representatives from the Centre and states. Political differences, including between BJP-ruled and opposition states, have stalled rate rationalisation efforts. Opposition-ruled states have demanded lower rates on life and health insurance premiums, denoting the political complexity. Amit Shah’s involvement is seen as crucial to resolving these issues and securing state support.
Role of the Home Minister in GST Reforms
Though the Finance Ministry primarily manages GST, the Home Minister’s role has become in politically sensitive decisions. Amit Shah’s participation aims to bring political heft and facilitate consensus. His involvement follows precedents where he engaged in decisions on disinvestment and price control of essential commodities.
Recent Developments and Future Outlook
The GST Council’s 55th meeting in December 2024 postponed decisions on lowering insurance premium taxes. The Group of Ministers (GoM) on rate rationalisation continues deliberations on adjusting rates for 148 items. The next GST Council meeting is expected to revisit these proposals, seeking a balanced approach to simplify the tax system without severely impacting revenues.
Revenue Distribution Across GST Slabs
Data from 2023-24 shows that 70-75 per cent of GST revenue comes from the 18 per cent slab. The 12 per cent slab contributes 5-6 per cent, while the 5 per cent and 28 per cent slabs account for 6-8 per cent and 13-15 per cent respectively. This distribution puts stress on the fiscal impact of any slab rationalisation.
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