NEW DELHI, September 3: — India’s Goods and Services Tax Council began its 56th meeting Wednesday, chaired by Finance Minister Nirmala Sitharaman, to deliberate on a sweeping reform proposal aimed at simplifying tax rates and easing the compliance burden for businesses. The proposal, which has been vetted by a group of state finance ministers, seeks to reduce the current GST structure from four slabs to just two: 5 percent and 18 percent. This would eliminate the 12 percent and 28 percent slabs, with a special 40 percent tax proposed for a select few items, including tobacco and ultra-luxury goods.
The proposed changes would significantly lower tax rates on many common items. Under the plan, 99 percent of goods in the current 12 percent category, such as butter, fruit juices, and dry fruits, would be moved to the 5 percent slab. Similarly, about 90 percent of items currently taxed at 28 percent, including electronic items like air conditioners, televisions, and washing machines, would be moved to the 18 percent slab. The Centre’s blueprint for these reforms is based on three pillars: structural reform, rate rationalization, and ease of living.
While the Telugu Desam Party (TDP), an ally of the ruling BJP-led National Democratic Alliance, has voiced its support for the move, opposition-ruled states have demanded revenue protection to compensate for potential losses. Andhra Pradesh Finance Minister Payyavula Keshav told reporters before the meeting that his state is supporting the Centre’s proposals.
“As an alliance partner, we are supporting the Centre’s proposal of GST rate rationalisation,” Keshav mentioned. “It is in favor of the common man.”
Meanwhile, eight states ruled by opposition parties—Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal—met ahead of the Council meeting to formalize their strategy. They reaffirmed their demand for the Centre to guarantee revenue protection before they would approve the rate changes. Jharkhand Finance Minister Radha Krishna Kishore noted that his state anticipates a revenue loss of Rs 2,000 crore if the reforms are implemented.
“If the Centre agrees to compensate us for whatever loss we would incur, then we have no issues in approving the agenda before the Council,” Kishore told reporters after the opposition bloc’s meeting. He also added that in a federal system, it is the Centre’s responsibility to compensate states for revenue loss.
The current tax structure sees the 18 percent slab contributing the largest share to GST collections at 65 percent, while the 5 percent slab accounts for 7 percent. The 28 percent slab on luxury and sin goods contributes 11 percent, and the 12 percent slab accounts for just 5 percent of the total revenue.
Prime Minister Narendra Modi had previously unveiled the plan for GST reforms in his Independence Day speech on Aug. 15. The Central Government subsequently shared a blueprint of the reform with a Group of Ministers from different states for initial vetting. According to the blueprint, eight sectors—textiles, fertilizers, renewable energy, automotive, handicrafts, agriculture, health, and insurance—are poised to benefit most from the overhaul. The ‘ease of living’ reforms noted in the proposal include seamless, technology-driven GST registration and faster, automated processing of refunds.
Finance Minister Sitharaman had commented on Tuesday that the reforms would “set an economy absolutely open and transparent” and reduce compliance burden for small businesses.
