GST Rate Rationalization in Priority for Council in 2024-25

In a potential game-changing move for India’s current GST regime, the government is reportedly considering a shift to a three-slab structure in the upcoming fiscal year. Sources familiar with the matter suggest that rate rationalization is set to become a top priority for the GST Council in the next fiscal, with discussions on transitioning to a three-slab system gaining traction.

Rate rationalization entails the possibility of reassigning items across different tax slabs. However, during this process, the government is expected to exercise caution to ensure an optimal overall tax burden.

Former Finance Minister Arun Jaitley had initially envisioned rate rationalization shortly after the GST launch in 2017. He had hinted at the potential for consolidating the two standard rates of 12% and 18% into a single rate over time, describing it as a feasible suggestion during debates on GST-related bills in 2017.

Regarding which rates are likely to undergo changes, sources indicate that while the 28% slab is likely to remain unchanged, adjustments are expected for the 5%, 12%, and 18% slabs. Additionally, rectifying the inverted duty structure will also be a crucial aspect of the discussion.

The GST Council is anticipated to convene after the upcoming general elections once the new government assumes office. This move comes as GST revenues show signs of stabilization, with the government projecting an average monthly revenue of Rs 1.8 lakh crore for FY25, providing impetus to reconsider the slab structure.

The path towards rate rationalization will be guided by a detailed report and discussions led by a Group of Ministers (GoM) on Rate Rationalization. Although a GoM panel chaired by Karnataka’s FM and CM BS Bommai had presented an interim report and made some changes related to the inverted duty structure in the June 2022 GST Council meeting, it sought additional time to finalize its report.

The panel was subsequently reconstituted in November 2023 under the chairmanship of UP’s Finance Minister Suresh Khanna. However, the panel has yet to convene a meeting. It is expected that the GoM will meet after the general election results are announced. The GoM comprises members from states including UP, Goa, Bihar, Rajasthan, West Bengal, Karnataka, and Kerala, indicating a collaborative effort towards achieving rate rationalization in the GST structure.