Finance Minister Nirmala Sitharaman is set to champion a transformative GST reform at a pivotal two-day meeting of the Group of Ministers (GoM) on GST rate rationalization, scheduled for August 20-21 in New Delhi. The Centre’s ambitious proposal aims to simplify the Goods and Services Tax (GST) structure by introducing a two-tier system of 5% and 18%, alongside a 40% special rate for select demerit goods, potentially slashing prices for everyday essentials.

The proposed reform eliminates the existing 12% and 28% tax slabs, reclassifying items into 'merit' and 'standard' categories to ease the tax burden on the middle class, MSMEs, and the farm sector. Sources indicate that 99% of goods currently taxed at 12% would shift to the 5% slab, while 90% of goods and services in the 28% slab would move to 18%. The 40% rate, the highest permissible under GST law, would apply to only 5-7 demerit items, such as pan masala, tobacco, and online gaming.

“Although the Centre is not a GoM member, Sitharaman’s address will clarify the rationale behind this reform, aiding the panel’s understanding,” a source told PTI. The GoM, led by Bihar Deputy Chief Minister Samrat Choudhary, includes finance and revenue ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, and Kerala. The panel’s discussions will shape the proposal before it reaches the GST Council, chaired by Sitharaman and comprising state and Union Territory finance ministers, likely in September.

Also Read: Monsoon Session: FDI Boost to Transform India’s Insurance Sector

Currently, GST is levied at 0%, 5%, 12%, 18%, and 28%, with essential items like food at nil or 5% and luxury or demerit goods at 28% plus cess. The proposed changes aim to streamline compliance, reduce costs for consumers, and boost economic activity. If approved, the reforms could mark a significant shift in India’s taxation framework, aligning with the government’s vision of fostering economic inclusivity and supporting small businesses.

The GoM’s deliberations will focus on balancing revenue needs with consumer relief, addressing concerns from states reliant on higher tax slabs. Experts anticipate robust discussions, given the diverse economic priorities of member states. The outcome of this meeting could set the stage for a landmark GST Council decision, potentially transforming India’s tax landscape before Diwali.

Also Read: Nirmala Sitharaman’s Tax Bill: Pension Relief and Saudi Fund Benefits Unveiled!