Despite the Centre’s push to simplify the Goods and Services Tax (GST) structure by eliminating the 12 percent slab, the Group of Ministers (GoM) on GST rate rationalisation remains divided on the proposal.

The six-member GoM includes Bihar Deputy Chief Minister Samrat Chaudhary, Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Services Minister Gajendra Singh, Karnataka Revenue Minister Krishna Byre Gowda, West Bengal Finance Minister Chandrima Bhattacharya and Kerala Finance Minister K N Balagopal.

Sitharaman’s intervention could be critical in resolving the differences among states, which have so far resisted the move due to concerns over uneven tax burden and potential revenue losses.

“There is no consensus in this GoM on doing away with the 12 percent GST slab,” official sources told Moneycontrol. “The Centre is keen to do away with the 12 percent slab, but some state ministers are not willing.”

The Finance Minister’s direct involvement is expected to help build consensus among states. “After the Parliament session, the FM is expected to meet the GoM on rate rationalisation, see what they are thinking, and give her guidance. She knows the pulse of the economy. So, she may like to meet the GoM informally. Then she may try to convince the GoM,” the sources added.

A growing clamour for GST rationalisation has the Centre and states attempting to find common ground over the future roadmap for the tax regime. However, with states holding firm on the 12 percent slab, the Finance Minister’s intervention could determine the future course of GST reforms in India.

Low revenue contribution from 12% slab

The GST, introduced in July 2017, is a comprehensive indirect tax on the supply of goods and services and serves as a key revenue source for both the central and state governments. It is structured into four primary slabs: 5 percent, 12 percent, 18 percent, and 28 percent.

While the Centre is keen on eliminating the 12 percent slab to simplify the tax structure, the GoM has so far only made incremental changes by moving items between existing slabs, without altering the overall framework.

Centre pushing for a three-rate system

The Centre is pushing for a three-rate system by phasing out the 12 percent slab, which would leave only the 5 percent, 18 percent, and 28 percent tax rates. However, lack of consensus among states has slowed down this process. The GoM on GST rate rationalisation, chaired by Bihar Deputy Chief Minister Samrat Chaudhary, has faced resistance from some state ministers who argue that doing away with the 12 percent slab could lead to an uneven tax burden and affect certain sectors disproportionately.

After offering an income-tax cut in the Union Budget, the government’s focus has shifted to speeding up long-pending GST rationalisation efforts to further boost consumption and reduce tax-related disputes. Economists have pointed out that consumption demand is more responsive to indirect tax cuts than direct tax cuts, thereby making GST reforms more effective in driving public spending and economic growth.

Source : Moneycontrol.com