The ministerial panel tasked to rationalise the Goods and Services Tax (GST) rates is toying with the idea of lowering the levy on some essential items across a wide spectrum – from medicines to tractors – to 5 percent. The proposal comes as the panel works towards striking a balance in tax rates while maintaining revenue stability, reports The Times of India.

Tractors now attract 12-28 percent GST,  depending on their classification. To offset the potential revenue loss from lower GST rate on tractors, there is discussion around raising the GST on high-end electric vehicles (EVs) priced above Rs 40 lakh and imported cars from the current rate of 5 percent, said the TOI report.

A reduction in GST rates for health and term insurance is also on the horizon, although the exact rate is yet to be determined. Health insurance could see a decrease from 18 percent to 12 percent, while term insurance may attract a GST of 5 percent. There are suggestions to place term insurance in a ‘nil' rate segment, but this could deter suppliers of goods and services to life insurance companies from claiming input tax credits, making a 5% rate more appealing.

While the prospect of reducing the number of GST slabs from four to three remains unlikely, the panel, chaired by Bihar Deputy Chief Minister Samrat Chaudhary, is focused on moving certain items from the 12 percent bracket to 5 percent. Conversely, some items may be shifted to the 18 percent category as part of a gradual transition towards a three-rate structure.

Further clarity is expected by the end of October, as the panel is scheduled to meet on October 19 over the insurance matter, followed by discussions on rate rationalisation on October 20. By that time, officials in the fitment committee will work out the item-specific details.

State finance ministers in the Group of Ministers (GoM) have expressed varying opinions on the proposed three-rate structure. States such as Kerala, Karnataka, and West Bengal are advocating for the current tax structure to remain unchanged. Kerala Finance Minister KN Balagopal has shown particular reluctance to lower rates, which may be attributed to the state’s challenging financial situation.

Revenue implications are a significant concern for the states, as lowering GST on medicines from 12 percent to 5 percent could result in a loss exceeding Rs 11,000 crore for both the Centre and the states. Additionally, health insurance generates over Rs 8,000 crore in GST revenue. The 18 percent and 28 percent tax slabs are critical revenue sources, with the latter accounting for 72-73 percent of total collections.

Concerns over potential cartelisation in specific industries may also impact decisions. The cement sector, known for its history of price-fixing, is likely to remain at the 28 percent rate, alongside other sin goods such as cigarettes, soft drinks, and packaged snacks, which will be evaluated closely for their revenue contributions.

Source: Money Control