In what is being seen as the biggest reform in indirect taxation since its launch in 2017, the Goods and Services Tax (GST) regime is set for a major overhaul. The Group of Ministers (GoM) has broadly supported the Centre’s proposal to move towards a simplified two-slab structure, signalling the beginning of a new phase in the GST journey. With this endorsement, the contentious 12 per cent and 28 per cent slabs are likely to be scrapped, thus paving the way for a much cleaner tax architecture.
The GoM decision comes after multiple rounds of deliberations with state finance ministers, industry experts and tax officials. The broad consensus reflects the shared view that the present four-slab structure has become cumbersome, adding to confusion both for consumers and businesses.
Towards a Simpler Tax Architecture
When GST was introduced in 2017, it was hailed as one nation-one tax. However, the existence of multiple slabs—5 per cent, 12 per cent, 18 per cent and 28 per cent—along with exemptions created layers of complexity.
Businesses across sectors often raised issues of classification disputes and ambiguity in input tax credits. Consumers too complained of uneven pricing, as goods in similar categories often attracted different rates.
The Centre’s proposal to retain mainly a lower slab and a standard slab is being seen as an attempt to bridge these gaps. Under the proposed plan, the 12 per cent rate would be merged with the 18 per cent slab, while the highest 28 per cent slab would be gradually phased out, except for a very small number of sin and luxury goods. Representatives of the GoM, led by the finance minister of Bihar, noted that such a move would encourage compliance, reduce litigation and bring more predictability into the GST framework.
Impact on Consumers and Businesses
For consumers, the simplification is likely to result in more clarity while making purchases. Many essential household items that presently attract 12 per cent may shift into the standard 18 per cent bracket, though the Centre is reportedly considering refining the list to safeguard affordability. For high-end items, particularly cars, tobacco and luxury goods, a special cess is expected to continue in order to protect revenue.
Industry bodies have welcomed the decision, describing it as a positive step towards rationalising taxes. The Confederation of Indian Industry (CII) remarked that this move will help in reducing classification disputes, improve compliance, and make India more competitive from a tax perspective. Tax experts believe that while some sectors could see short-term price adjustments, the longer-term benefit lies in creating a more stable environment for trade and commerce.
Revenue Considerations and State Concerns
The biggest concern for states under GST has always been revenue security. States had earlier raised apprehensions about any rate rationalisation that might affect their collections. With the five-year GST compensation guarantee having ended in 2022, states continue to rely heavily on GST proceeds.
The Centre, however, assured that the proposed restructuring would not affect revenue. According to preliminary estimates shared in the GoM, merging of slabs can be tweaked in such a manner that the effective revenue neutral rate remains unchanged. Sources said that additional cess on luxury and sin goods as well as better compliance from simpler structures would make up for any shortfall.
Several states including Karnataka, Maharashtra and West Bengal insisted that the restructuring should not shift the financial burden onto them. Officials revealed that the Centre has agreed to create a special mechanism of review every quarter to ensure that states do not face revenue shocks during the transition phase.
Road Ahead and Political Consensus
The GST Council is expected to take up the GoM recommendations in its next meeting. If approved, the restructuring could be rolled out in phases, beginning with merging the 12 per cent and 18 per cent brackets, followed by streamlining the special 28 per cent rate. Officials indicated that the implementation could take place from the next financial year, provided administrative preparations are completed in time.
Political observers note that tax reforms of this scale need strong consensus. While the GoM push is a big step forward, the final approval of the GST Council, which represents both Centre and states, will be crucial. Analysts see this as an opportunity for the government to project a simpler and more people-friendly tax regime ahead of the coming national elections.
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