The Goods and Services Tax (GST) Council may reduce tax rates on some items to deliver a consumption boost, while remaining mindful of the revenue requirements of the Centre and states, two persons familiar with the discussions in the Council said.

The federal indirect taxes body may also end the 12% slab, and move items in that slab to the 5% slab and where essential, to the 18% slab, said one of the two persons quoted above. This will deliver a consumption stimulus, while also helping to simplify the tax structure, said the person, who spoke on the condition of not being named. Substantial amount of work has already happened in this respect, said the person.

A second person, who also spoke on the condition of not being named, said the Centre's suggestions have been placed before a group of ministers led by Bihar deputy chief minister Samrat Chaudhary. "The consideration of balancing the rate cut with moving certain items to the higher slab where it is justified has also been conveyed," said the person.

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In September 2021, the GST Council had formed the Chaudhary panel to work on rationalizing GST rates. Its original goal was to reduce disputes related to the classification of goods and services, correct tax anomalies like finished products getting taxed at a lower rate than raw materials, and to enhance GST revenue. Delivering a consumption boost has now become an added dimension, with some items moving to the 18% slab taking care of revenue considerations to some extent.

Queries emailed to the finance ministry and the GST Council Secretariat on Friday seeking comments remained unanswered.

The challenge ahead

In January, the Centre and states together collected net goods and services tax (GST) of ₹1.71 trillion, the highest in nine months. The collection was 10.9% higher than ₹1.54 trillion in the year-ago period. In April FY25, the net collection stood at ₹1.92 trillion.

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As of 1 April 2023, over 600 items (services excluded) fall in the 18% GST slab, while around 280 items are in the 5% slab and around 275 are in the 12% slab. Less than 50 products are in the highest 28% slab, Central Board of Indirect Taxes and Customs (CBIC) portal showed.

The Fifteenth Finance Commission led by N.K. Singh had highlighted that due to several rounds of tax rate cuts, the transition to GST from the previous 'value added tax-excise duty-service tax' regime was not a revenue-neutral exercise, and that a three-rate structure was needed in place of the current four rate structure — 5%, 12%, 18% and 28%.

GST authorities have been trying to improve the efficiency of the system and revenue performance with enhanced data collection and reporting requirements.

Demand for simpler and inclisive framework

Experts said the GST architecture offers scope for making it simpler, comprehensive and in the process, aiding economic growth.

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"Economics is all about trade-offs," said Sachchidanand Shukla, group chief economist at Larsen & Toubro. The long-term goal of GST, Shukla said, is to make it a really 'good and simple tax', for which we still have some distance to cover.

"Simplicity is the expectation from the new Income Tax Bill tabled in Parliament on Thursday. The same can be said about GST as well. Over the years, GST rates on several items have been changed frequently for various short-term objectives, distorting its architecture. It is also true that we need to have tax buoyancy from the basket of goods and services in GST in conjunction with the expansion in nominal GDP. We need to be judicious while making changes," said Shukla.

"One area that needs action is inclusion of petroleum products within the purview GST. This will help in achieving the goal of 'a good and simple tax' and also bring down tax incidence on key segments of the economy, which will also have a salutary effect on consumptiondemand," said Shukla.

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Another economist said GST data since 2017 is expected to help in deciphering consumption trends across products and services that could form the basis for the tax rejig. The central government's effective capital expenditure amounting to 4.3% of GDP and the expected increase in disposable income due to the personal income tax rate relief worth ₹1 trillion offered in the budget are also expected to boost the economy, said the economist, who did not wish to be named.