GST Rate Reduction: Government Plans Major Overhaul to Benefit Middle Class

In a significant move aimed at providing relief to the middle class, the central government has already made income up to Rs 12 lakh tax-free in the budget. Now, the government is focusing on streamlining the Goods and Services Tax (GST) structure and is exploring the possibility of lowering GST rates to stimulate consumer spending. As per a report by Mint, the GST Council is evaluating the removal of the 12 percent tax bracket, with the option to either place the items under the 5 percent or 18 percent tax category.

Potential Removal of 12 Percent GST Slab

Reports suggest that the government is contemplating scrapping the 12 percent GST slab altogether. This proposal aims to simplify the current GST structure and minimize the number of tax slabs. The GST Council is reviewing the idea of shifting goods and services taxed at 12 percent to either the 5 percent or 18 percent bracket. While reducing the rate to 5 percent may lead to revenue losses for the government, moving it to 18 percent could increase the tax burden on certain essential goods.

Current Distribution of Items Under GST Slabs

According to data from the Central Board of Indirect Taxes and Customs (CBIC) as of April 2023, more than 600 items were subject to an 18 percent GST rate. Approximately 275 items fell under the 12 percent slab, and around 280 items were taxed at 5 percent. The highest GST rate of 28 percent applied to fewer than 50 items.

Proposal for a Three-Tier GST System

Previously, the Fifteenth Finance Commission, led by N.K. Singh, had recommended revising the GST structure. The commission proposed reducing the existing four-rate system (5, 12, 18, and 28 percent) to a simplified three-tier structure. This suggestion was made considering the impact of rate reductions on government revenue.

Rising GST Revenue Collection

Despite the ongoing discussions about restructuring GST rates, GST collections have been robust. In January, GST revenue reached Rs 1.71 trillion, marking a nine-month high and reflecting a 10.9 percent increase compared to the same period the previous year.