Home Minister Amit Shah is set to lead critical discussions to build consensus among states and ministries on major Goods and Services Tax (GST) reforms, aiming to simplify the tax structure.
Driving GST Reforms
The Union government is pushing to overhaul the GST regime, and Home Minister Amit Shah is now stepping in to accelerate the process. His involvement signals a serious effort to get all parties on board, including states and various Central ministries, to resolve long-standing issues.
The primary goal is to achieve broad consensus on contentious proposals, especially those related to rate rationalisation. This move is seen as crucial for the next phase of India’s biggest indirect tax reform.
The 12 Percent Slab Challenge
One of the key proposals on the table is to eliminate the 12 percent GST slab. This would involve moving items currently in this bracket either to the lower 5 percent slab or the higher 18 percent slab.
While this simplification could streamline the multi-rate structure, it comes with a significant financial hurdle. Estimates suggest a potential revenue loss of Rs 70,000-80,000 crore for both the Centre and states combined. This is a major concern for all stakeholders.
Why Shah’s Intervention is Key
Adjusting the GST structure, which has stabilised over eight years, is no easy task. Revenue implications make states hesitant to readily accept changes, regardless of their political affiliation. This is why the Home Minister’s direct engagement is considered vital.
Sources indicate that Shah has already met with Finance Ministry officials to prepare for these crucial talks. His involvement is particularly important for “politically sensitive issues” that require strong backing from the states to pass through the GST Council.
His past involvement in complex discussions, like disinvestment or controlling food prices, highlights his role in building consensus on tough policy matters.
GST’s Complex Journey
Introduced in July 2017, GST aimed to unify India’s indirect taxes. However, it operates with multiple rates: 0, 5, 12, 18, and 28 percent, plus additional cess for certain goods and special rates for items like precious metals. This complexity has often been criticised.
Attempts to simplify these rates, particularly on consumer items, have faced roadblocks in the GST Council, which includes representatives from both the Centre and states. For instance, proposals to reduce tax on health and life insurance premiums have also been deferred.
Previous Efforts and Future Plans
Discussions about GST rate rationalisation have been ongoing for over four years. In 2021, the GST Council acknowledged the need for reform and corrected inverted duty structures in sectors like textiles and footwear.
Earlier this year, a ministerial panel extensively reviewed items across various tax slabs. However, they initially struggled to move away from the 12 percent slab, as it contributed a modest 5-6 percent of total GST collections, compared to the 18 percent slab’s 70-75 percent contribution.
The Home Minister’s direct talks signal a renewed push to find common ground. Major overhauls will likely require multiple meetings and broad agreement, possibly even a vote within the Council, to ensure successful implementation.
- Home Minister Amit Shah will lead talks to build consensus on GST reforms.
- A key proposal involves removing the 12% GST slab, potentially leading to significant revenue loss.
- States are hesitant due to financial implications, making Shah’s intervention crucial for political buy-in.
- The GST system, introduced in 2017, currently has multiple tax rates.
- Past attempts at rate simplification have faced challenges in the GST Council.
These high-level discussions are aimed at navigating the complex economic and political landscape to finally streamline India’s ambitious GST framework.
