GST Council may consider merging the 12% and 18% tax slab in next meeting
Under GST, all goods and services transacted in India are classified under the HSN code system or SAC Code system. Goods are classified under HSN Code and services are classified under SAC Code. Based on the HSN or SAC code, GST rates have been fixed in five slabs, namely NIL, 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess. The Finance Minister, Nirmala Sitharaman said that the GST Council now would examine the recommendations of reducing four tax slabs to three.
Recommendations of the 15th Finance Commission for 2020-21
The Finance Commission is a constitutional body formed by the President of India to give suggestions on centre-state financial relations. The 15th Finance Commission was required to submit a report which will consist of recommendations for FY 2020-21.
The 15th Finance Commission, headed by N K Singh, has suggested that the 12% and 18% slabs under the Goods and Services Tax (GST) be merged into one standard rate, and GST be rationalised to a three-rate structure, complemented by the 5% merit rate and 28-30% de-merit rate.
This has been a long-standing demand from economists and the Opposition, and has found a way in the Commission’s recommendations.
What is proposed by the Finance Minister regarding the reduction of slab rates?
Minister Nirmala Sitharaman on the Recommendations of the 15th Finance Commission said that they would definitely be talking about it, whenever the council found it fit. Whether it would be in the next meeting itself, the Finance Minister could not speak for the Council as yet.
The proposal is to reduce GST slabs from the current four i.e., 5%, 12%, 18%, and 28%, to three slabs with the rates of 8%, 18%, and 28%.
The Goods and Services Tax (GST) Council may choose to consider the proposal to reduce the number of tax slabs to three.
What would be the impact of such reduction?
The impact on the consumer will depend on the Council’s decision but reducing the tax rate will make the GST regime simpler for the states and, the government would hope, improve compliance.
|Current GST Slab Rates||Proposed GST Slab Rates|
|5%||Merged to 8% tax slab|
|12%||Merged to 8% tax slab|
These are some of the products that are likely to be affected after GST slab merger:
|Goods under 12% GST||Goods under 18% GST|
|Cell phones||hair oil, hair shampoo, oil powder|
|Sewing machine||video games|
|Frozen meat||lithium-ion batteries|
|Sauces, ketchup, and mustard sauce||Wristwatches|
|Air travel tickets||oil powder|
Merging the GST rates would most definitely simplify the GST structure. However, it is yet to be seen if the same would result in loss of revenue or not.