GoM backs 2-slab structure for GST, Opposition flags revenue loss

The Group of Ministers (GoM) on Goods and Services Tax (GST) rate rationalisation on Thursday supported the Centre’s proposal to simplify the GST structure by reducing tax slabs from four (5%, 12%, 18% and 28%) to just two (5% and 18%), alongside a special 40 per cent rate for select "demerit goods" like tobacco and high-end automobiles. However, members from Opposition-ruled states expressed concerns over the expected revenue shortfall if the two-slab structure was introduced.

Bihar Deputy Chief Minister and GoM Chairperson Samrat Choudhary said they would recommend the two-slab structure proposal of the government to the GST Council.

"We discussed the Centre’s proposal to end two GST slabs — 12 per cent and 28 per cent — and have supported it. ...The GST Council will decide on this now," said Choudhary.

West Bengal Finance Minister Chandrima Bhattacharya said all members of the GoM expressed support for the proposed GST rate rationalisation, provided it benefits the common man. Stressing the importance of quantifying the potential revenue loss, Bhattacharya said, “Quantification of the loss has not been done yet. This is important to know. We have to think about how to compensate the states.”

She also proposed that items currently attracting over 40 per cent tax, including cess, such as luxury and demerit goods, should face additional duties to offset any revenue shortfall.

“We suggested amendments to the GST Act to add a special provision of additional duty on the 'sin' goods and luxury items which earlier used to attract over 40 per cent tax, including the cess to address revenue shortfall,” she said.

Deputy Chief Minister of Telangana Mallu Bhatti Vikramarka also expressed the need to ensure that the revenue of the states must be protected. He proposed that either the present compensation cess be continued, with the amount collected fully allocated to the respective states.

Punjab Finance Minister Harpal Singh Cheema emphasised that if the new GST changes were implemented, the Centre should take responsibility for compensating the states for financial losses.

Among others, the GoM includes finance ministers from Uttar Pradesh, Rajasthan, Karnataka, Kerala, Telangana, Punjab and West Bengal. The GoM’s report with recommendations will be presented to the GST Council, chaired by Finance Minister Nirmala Sitharaman, and comprising finance ministers from all states and Union Territories, in its next meeting, likely scheduled for September.

The council will take the final decision on the proposed reforms, which Prime Minister Narendra Modi has described as a “Diwali gift” to reduce tax burdens and benefit small industries.

The proposed GST reforms come as the compensation cess regime, designed to offset state revenue losses, is set to end on March 31, 2026. The GST Council is also expected to address related issues, such as GST exemptions on health and life insurance premiums, in its upcoming meeting. On Wednesday, the GoM had proposed the GST exemptions on health and life insurance for individuals.