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Deadlock On 12% GST Slab: While the Centre is keen to eliminate the slab, some state ministers are opposed to the proposal
Union Finance Minister Nirmala Sitharaman is likely to engage with the GoM directly in April
Despite the Centre’s push to simplify the Goods and Services Tax (GST) structure by eliminating the 12% slab, the Group of Ministers (GoM) on GST rate rationalisation remains divided on the proposal.
Union Finance Minister Nirmala Sitharaman is expected to engage directly with the GoM in April, after the Budget session, to provide guidance and try to resolve the deadlock, according to a report by Moneycontrol.
The six-member GoM includes key ministers from Bihar, Uttar Pradesh, Rajasthan, Karnataka, West Bengal, and Kerala. Sitharaman’s involvement is seen as critical in resolving the differences between states, many of which have opposed the move due to concerns about uneven tax burdens and potential revenue losses.
Sources informed Moneycontrol that there is no consensus within the GoM regarding the removal of the 12% GST slab. While the Centre is keen to eliminate the slab, some state ministers are opposed to the proposal.
Sitharaman’s direct intervention is anticipated to play a crucial role in building consensus. Sources further stated that after the Parliament session, the Finance Minister is expected to meet with the GoM on rate rationalisation, assess their perspectives, and provide her guidance.
The Centre and states have been attempting to find common ground on GST rationalisation, but resistance from states has slowed progress. Sitharaman’s involvement could be key to determining the future direction of GST reforms in India.
Low Revenue Contribution from the 12% Slab
The 12% GST slab contributes just 5% of India’s total GST revenue, making it the lowest among the primary tax slabs. In contrast, the 18% slab accounts for 73% of the overall revenue, while the 28% slab contributes 12.5%. The 5% slab generates 8% of the revenue.
Since the introduction of GST in July 2017, it has served as a key revenue source for both the central and state governments, with four primary slabs: 5%, 12%, 18%, and 28%.
While the Centre aims to simplify the tax structure by eliminating the 12% slab, the GoM has only made minor adjustments, such as shifting items between slabs, rather than overhauling the entire structure.
The Centre is pushing for a three-rate system, with only the 5%, 18%, and 28% rates remaining. However, the lack of consensus among states has hindered this proposal. Some state ministers argue that removing the 12% slab could disproportionately affect certain sectors.
After offering income tax cuts in the Union Budget, the government is now focused on speeding up GST rationalisation efforts to boost consumption and reduce tax-related disputes. Economists argue that cuts in indirect taxes, such as GST, are more effective in stimulating demand than direct tax cuts, potentially driving public spending and economic growth.