New Delhi: The Group of Ministers (GoM) on GST rate rationalisation accepted the Centre’s proposal to streamline the Goods and Services Tax into just two slabs: 5% and 18%. The six-member panel of state finance ministers also agreed to remove the existing 12% and 28% tax brackets, marking a major step towards simplifying India’s complex GST structure.

Bihar Deputy Chief Minister and GoM convenor Samrat Choudhary confirmed the decision after the meeting, stating, “Both the proposals of the Centre have been accepted by the GoM on rate rationalisation.”

What about luxury and sin goods?

While the GST slabs on most goods will be rationalised, the Centre has proposed a 40% tax on ultra-luxury and sin goods, said Uttar Pradesh Finance Minister Suresh Kumar Khanna. However, this move has sparked further debate.

West Bengal Finance Minister Chandrima Bhattacharya revealed that her state has proposed an additional levy on top of the 40% GST rate to maintain the current tax burden on luxury items such as cars and sin goods. Bhattacharya also raised concerns over the Centre’s proposal not addressing potential revenue losses for both the Centre and the states following the new GST slab implementation.

How does this compare to the current GST structure?

Currently, India’s GST operates on a four-tier system with slabs at 5%, 12%, 18%, and 28%. Food items are mostly taxed at either 0% or 5%, while luxury and sin goods fall under the 28% slab. On top of this, a cess at varied rates is applied to demerit and luxury goods, including automobiles.

The proposed rationalisation aims to simplify this structure by eliminating the middle slabs (12% and 28%) and consolidating the tax rates, except for the ultra-luxury and sin category, which will face a higher tax rate.

What are the possible implications?

The decision to move to a two-slab GST system could ease compliance and reduce confusion among taxpayers and businesses. However, concerns remain regarding how the changes will impact revenue collection and the financial health of states, especially those reliant on GST revenues from higher tax slabs and cesses.