GST rate rationalisation: GoM not keen on tweaking current slabs for now, seeks for data

• The reconstituted Group of Ministers (GoM) broadly agreed to not make any changes with the existing slabs.

Highlights:

• In a key meeting held on August 22, 2024, the reconstituted Group of Ministers (GoM) on rate rationalization under the Goods and Services Tax (GST) regime decided not to make any immediate changes to the existing tax slabs.
• This decision comes amid ongoing discussions about potential adjustments in the GST structure, particularly in light of persistent demands for changes in specific sectors like health and life insurance.

Key Outcomes of the Meeting

1. No Immediate Changes to GST Slabs:

• The GoM, led by Bihar’s Deputy Chief Minister Samrat Chaudhary, broadly agreed to maintain the current GST slabs of 5%, 12%, 18%, and 28%. This decision aligns with the sentiments expressed by several state finance ministers who participated in the meeting.
• West Bengal Finance Minister Chandrima Bhattacharya and Karnataka Revenue Minister Krishna Byre Gowda were among those advocating for no changes in the GST slabs, citing the need to avoid disturbing a system that has settled well.

2. Review of GST on Insurance:

• The issue of reducing the GST rate on health and life insurance premiums was discussed, with some members suggesting a review by the fitment committee.

3. Further Data Collection and Review:

• The GoM has requested additional data on various items before making a detailed presentation on rate rationalization proposals at the upcoming GST Council meeting scheduled for September 9, 2024.

4. Opposition and Public Pressure:

• The topic of reducing GST on life and health insurance premiums has been a point of contention, with opposition leaders, including Rahul Gandhi and Mamata Banerjee, calling for its withdrawal.
• Union Minister Nitin Gadkari also highlighted the issue, describing GST on insurance premiums as a tax on the uncertainties of life.
• Finance Minister Nirmala Sitharaman previously clarified that taxes on insurance premiums predate the GST regime and that GST revenues are shared between states and the Centre.

5. Revenue Neutrality Concerns:

• The discussions also touched upon the importance of maintaining revenue neutrality in the GST structure.
• RBI had earlier shown that while the Chief Economic Advisor’s report had pegged the revenue neutral rate at 15.3 per cent, the weighted average GST rate stood at 14.4 per cent in May 2017, and subsequently dropped to 11.6 per cent by September 2019.

Background

• The GoM was reconstituted to address rate rationalization following deliberations on the revenue situation in the 45th GST Council meeting held in September 2021.
• An interim report submitted by the previous GoM in June 2022 suggested changes in rates for certain goods and services.

Prelims Takeaways:

• GST
• GoM