One major proposal under consideration is the reduction of primary GST rates from four to three. This could involve merging the 12% and 18% rates into a new 15% rate or combining the 5% and 12% rates into an 8% rate.
The GST Council has announced the reconstitution of the Group of Ministers (GoM) responsible for recommending GST rate rationalisation. Bihar Deputy Chief Minister, Samrat Chaudhary, has been appointed as the new convenor, replacing Uttar Pradesh Finance Minister Suresh Khanna.
The reconstituted panel includes Suresh Kumar Khanna from Uttar Pradesh, Goa Transport Minister Mauvin Godinho, Rajasthan Medical and Health Services Minister Gajendra Singh, West Bengal Finance Minister Chandrima Bhattacharya, Karnataka Revenue Minister Krishna Byre Gowda, and Kerala Finance Minister K N Balagopal. This change follows the formation of the JD(U)-BJP alliance government in Bihar, which led to Samrat Chaudhary taking over the finance portfolio from Vijay Kumar Chaudhary.
Out of the seven-member GoM, four are from NDA-ruled states while three are from opposition-ruled states. The terms of reference for the committee remain unchanged. Initially, the GoM was expected to submit its report within two months and provide recommendations for immediate measures as well as a roadmap for short and medium-term changes.
Key Proposals and Challenges
One major proposal under consideration is the reduction of primary GST rates from four to three. This could involve merging the 12% and 18% rates into a new 15% rate or combining the 5% and 12% rates into an 8% rate. While this would make some items cheaper, it could also push many items into higher rate brackets, potentially leading to inflation. This concern has delayed previous rationalisation efforts, and experts believe it will be a challenging task.
Objectives of the GoM
The GoM’s mandate includes suggesting necessary rate rationalisations and correcting the inverted duty structure. Their goal is to simplify the GST rate structure, review the GST exemption list, and enhance revenue collection from the Goods and Services Tax. Originally established in September 2021 under then Karnataka Chief Minister Basavaraj Bommai, the panel submitted an interim report to the GST Council in June 2022. This report proposed changes in tax rates for certain goods and services to streamline the levy.
Next Steps
The reconstituted GoM is now tasked with submitting a final report to the GST Council, recommending changes to tax rates and slabs to facilitate further reforms. Currently, the GST regime has four main tax slabs of 5%, 12%, 18%, and 28%, along with four special rates of 0%, 0.25%, 1.5%, 3%, and 6%. Additionally, a cess is applied on top of the highest 28% rate for luxury and demerit goods.
Once the committee submits its report, the Fitment Committee will review it and finalize the agenda for the GST Council. Following the Council’s recommendations, both the Centre and the States (including three Union Territories with assemblies) will notify the new GST rates.
Stay tuned for further updates on this crucial development in GST rate rationalisation and the potential impacts on the Indian economy.
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