Even as states and the industry await to hear from the centre about the next GST Council, the Finance Ministry has initiated inter-ministerial consultations to build consensus around a fresh round of Goods and Services Tax (GST) rate rationalisation, sources told CNBC-TV18.

The move gains importance as the government is likely to propose simplifying the current GST rate structure by phasing out the 12% slab and reassigning items to either the 5% or 18% categories. Additionally, it is likely to propose an overall rate rejig to reduce the tax burden on the common man.

Sources further said that the top political government is also likely to hold discussions with state governments before formally placing these for a detailed discussion before the Council.

“The push is aimed at ensuring smoother decision-making during the GST Council’s deliberations as the decision could not be easy for states as it might have an impact on the revenues, keeping the politics aside,” sources said.

Inter-ministerial consultations underway

Sources told CNBC-TV18 that the Finance Ministry has already held meetings with key line ministries, including the Department of Commerce, Department of Industry, Ministry of Home Affairs, Department of Pharmaceuticals, Ministry of Health and Family Welfare, Department of Agriculture and Farmers Welfare, Ministry of Chemicals and Fertilisers, Ministry of Railways, Department of Heavy Industries, Textile Ministry and Department of Consumer Affairs, amongst others.

“Inputs have been sought on the potential impact and feasibility of rate changes across various sectors and an impact,” sources said.

“The idea is to simplify the rate structure by eliminating the 12% slab, which will help reduce classification disputes and make compliance easier, and these inter-ministerial talks will help to understand which items can be reduced under tax slabs and where taxes can be inched so that the overall impact is less,” a government official aware of the discussions told CNBC-TV18.

“The Finance Ministry is gathering inputs from relevant ministries before finalising a proposal to be taken to the GST Council.”

In addition, sources confirmed that “senior officials in the Prime Minister’s Office (PMO) have also been briefed on the proposed rate rationalisation exercise and possible scenarios around slab restructuring.”

An email query sent to the Finance Ministry by CNBC-TV18 on the status of these consultations and proposals remained unanswered at the time of publishing.

State consultations next

The top political government also plans to begin informal consultations with states in the coming days to take them on board before the Council meets, sources said.

State governments are equal stakeholders in the GST structure, and consensus will be key for any major change in tax rates, sources added.

“Ahead of the GST Council meeting, there will be discussions with state officials to align expectations and assess revenue concerns that may arise due to slab changes,” said another source familiar with the process.

Sources added that the GST Council is likely to take up proposals related to:

• Phasing out the 12% GST slab,
• Rationalising tax rates across slabs,
• Realigning items between the 5% and 18% categories.

Long-pending reform back in focus

The proposal to rationalise GST rates has been in the works for several years but has faced delays due to concerns over revenue neutrality and resistance from some states. India currently broadly has a four-tier GST slab structure—5%, 12%, 18%, and 28%—with multiple exemptions and special rates for certain items such as gold and precious stones.

The 12% slab has been seen as redundant by many tax policy experts, as it contributes a smaller share of the total GST revenue but adds to complexity and classification disputes.

According to the government data, 5%-6% of GST revenues come from the 12% slab. Whereas, about 70-75% of GST revenues collected in the 2023-24 fiscal year came from the 18% slab.

Multiple expert committees and GOMs under the GST framework nominated by the GST Council itself have previously discussed merging slabs, particularly the 12% and 18% rates, but a final decision has remained elusive.

However, with GST revenue collections stabilising and monthly receipts consistently exceeding ₹1.7 lakh crore in recent months, the government appears to be using the current window to reignite structural reforms in the GST framework.

What to expect at the GST Council meeting

The GST Council, chaired by the Union Finance Minister and comprising state finance ministers, is the apex decision-making body on GST-related matters. The Council is expected to meet soon to deliberate on the rate rationalisation proposals.

“The groundwork is being laid now so that when the Council meets, there is already a fair degree of alignment between the Centre and states. That’s why these inter-ministerial and pre-Council discussions are critical,” one of the sources told CNBC-TV18.

If approved, the proposals could mark a major step towards simplifying India’s GST structure, potentially reducing the number of slabs and addressing long-standing industry demands for a more rational and transparent tax regime.

Source: CNBC Tv-18