The three Groups of Ministers (GoMs) set up by the Goods and Services Tax (GST) Council will meet on August 20 and 21 to review the revised GST framework proposed by the Centre, including proposals to rationalise the tax structure.
The recommendations of the three GoMs will subsequently be taken to the GST Council, and officials are hopeful the Council will give its approval by Diwali.
The three panels of state finance ministers deal with rate rationalisation, insurance, and compensation cess.
The proposed revised rate structure does away with the 12 percent and 28 percent slabs, while retaining the 5 percent and 18 percent rates. Most of the products from 12 percent will move to 5 percent, and some to 18 percent. The highest GST rate will remain 40 percent, and a few products could be kept at this ‘special rate’, a government official said.
Senior officials said they expected to see a consumption boost immediately after rate rationalisation, which would compensate for part of the foregone revenue. “We believe these measures are fiscally sustainable,” a government source said. The 40 percent slab, though limited to a few products, will also act as a revenue cushion.
Officials said the rationalisation was designed keeping affordability in mind, and to protect the interests of the poor, farmers, the middle class, and MSMEs.
At the same time, the US has imposed steep tariffs on Indian exports, but government sources stressed this was a coincidence. “We have been working on this for the last two and a half years. The structural changes were waiting to be done,” said a source.
The Department of Revenue is expected to make a presentation to the three GoMs when they meet on August 20. The proposals were shared with the GoMs a day before the Prime Minister’s Independence Day address.
This marks the first time the Centre has proposed a recasting of GST to accelerate reforms. Until now, rationalisation has been driven largely by the GoMs and the GST Council.
Will the states agree?
The Group of Ministers on rate rationalisation includes ministers from Kerala, Uttar Pradesh, Rajasthan, West Bengal, Bihar, and Karnataka. Thomas Isaac, former finance minister of Kerala, slammed the restructuring as “devastating for state revenues.” But sources within the government said they are hopeful states will back this key GST reform.
The process requires the GoM to recommend the restructuring to the GST Council, which will take the final call.
“There has been no bias in the restructuring based on industry or product category. Recommendations have been made based on whether an item is of daily use by the common man, whether it hurts farmers, or if it burdens the middle class. Every item has passed through this filter,” a source said. Officials are hopeful that states will not have substantial grounds to oppose the recasting.
The GST Council comprises 33 members, including the Union Finance Minister, Ministers of State, and finance ministers of all states and union territories.
There is also an expectation that the recasting of GST will spur economic activity. “Indirect tax cannot be more burdensome than direct tax,” a source said.
Petrol and diesel under GST?
For now, the government seems inclined to retain status quo on including petrol, diesel, and liquor under GST, until states are ready. Currently, there is no GST on petrol and diesel in India. Being a state subject, fuel prices vary across states due to VAT and central excise duty.
The government is hopeful the new GST structure will be implemented by Diwali this year in late October, a deadline Prime Minister Modi mentioned in his Independence Day address.
