GoM backs GST simplification: Proposal to cut tax slabs to two rates, add 40% for demerit goods

The Group of Ministers (GoM) on GST rate rationalisation supported the Union Government’s proposal on Thursday to simplify the GST structure. The proposal suggests reducing tax slabs from four (5%, 12%, 18%, and 28%) to two (5% and 18%). Additionally, a special 40 per cent rate would apply to select demerit goods like tobacco and high-end automobiles.

West Bengal Finance Minister Chandrima Bhattacharya stated that all members of GoM expressed support for the proposed GST rate rationalisation. This support is contingent on the reforms benefiting the common people. Bhattacharya stressed the importance of quantifying the potential revenue loss, saying, “Quantification of loss has not been done yet. This is important to know.” She also proposed that items currently attracting over 40 per cent GST (including cess), such as luxury and demerit goods, should face additional duties to offset any revenue shortfall.

“We suggested amendments to the act to add a special provision of additional duty on sin goods and luxury items which earlier used to attract over 40 per cent tax including cess to address revenue shortfall,” she said. The GoM, chaired by Bihar Deputy Chief Minister Samrat Choudhary, includes finance ministers from Uttar Pradesh, Rajasthan, Karnataka, Kerala, and West Bengal.

The panel is tasked with reviewing the Centre’s proposal to move 99 per cent of goods currently taxed at 12% to the 5% slab and 90 per cent of goods and services in the 28% slab to the 18% bracket. The GoM’s report with recommendations will be presented to GST Council in its next meeting, likely scheduled for September. The GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising finance ministers from all states and union territories, will make the final decision on the proposed reforms.

Prime Minister Narendra Modi has described the reforms 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 like GST exemptions on health and life insurance premiums in its upcoming meeting. On Wednesday, GoM proposed GST exemptions on health and life insurance for individuals.