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GST Council Meeting News: GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state ministers, will begin it’s 2-day meeting today
GST Reforms 2.0
GST Council Meeting: The two-day GST Council meeting has begun, with the Centre likely to push for a 5 per cent tax on electric vehicles (EVs) as part of its ambitious overhaul of the Goods and Services Tax (GST). The reform seeks to lower tax rates on daily-use items ranging from butter to electronics.
Chaired by Union Finance Minister Nirmala Sitharaman and comprising state finance ministers, the Council will deliberate on the proposal during the session. The final decisions are expected to be announced at the conclusion of the meeting on September 4.
Next-Gen GST Reform: Two Slabs Proposed
The Centre’s proposal seeks to simplify GST by moving to just two tax rates—5 per cent and 18 per cent—by shifting products from the current 12 and 28 per cent slabs. In addition, a special 40 per cent rate has been suggested for luxury and demerit goods. The move is expected to lower prices of several essentials, though opposition-ruled states are demanding compensation for any revenue loss.
Background: From Four Slabs to Two
The current four-tier GST structure of 5, 12, 18 and 28 per cent was rolled out on July 1, 2017, replacing multiple state and central levies like excise duty and VAT. A compensation cess was also introduced to help states cover revenue shortfalls. However, this mechanism ended in June 2022.
Prime Minister’s Push for Reform
In his Independence Day speech on August 15, Prime Minister Narendra Modi announced the GST reform plan. The Centre later shared a blueprint with a Group of Ministers (GoM), which broadly endorsed doing away with the 12 and 28 per cent slabs to ease compliance and lower consumer prices.
Diverging Views on EV Taxation
While the GoM suggested levying 18 per cent GST on EVs priced up to ₹40 lakh, the Centre is keen to keep the rate at 5 per cent to accelerate EV adoption. This difference will be a key point of debate during the Council meeting.
Likely Changes in Daily-Use Items
Essential food products such as ghee, nuts, drinking water (20-litre packs), namkeen, medicines, footwear, and apparel could move from the 12 per cent to the 5 per cent slab. Everyday items like pencils, umbrellas, bicycles, and hairpins are also likely to attract the lower 5 per cent rate.
Electronics, Automobiles, and Luxury Goods
Electronics, including certain televisions, washing machines, and refrigerators, are expected to shift from 28 per cent to 18 per cent, reducing prices. Automobiles may see differential taxation: entry-level cars at 18 per cent, while SUVs and luxury cars fall under the special 40 per cent slab. Tobacco, pan masala, and cigarettes would also attract the 40 per cent rate, with scope for an additional levy.
Opposition States Demand Compensation
Eight opposition-ruled states—Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal—are demanding compensation for potential revenue losses after the rejig. They argue that rate cuts will reduce collections, while the Centre maintains that higher consumption from lower prices will offset the impact in the long run.
The GST Council is expected to deliberate on ending the compensation cess earlier than scheduled, possibly by October 31. Though the cess is officially slated to continue until March 31, 2026, sources said discussions are underway to wind it down ahead of time as loans raised during the Covid-19 years to cover states’ revenue shortfall near full repayment.
If the cess collection is halted this October, it could leave a surplus of around ₹2,000-3,000 crore, which may be shared equally between the Centre and the states, according to officials.
The Council may also take up the issue of a short-term compensation mechanism for states facing revenue losses from proposed tax rate cuts. However, the existing compensation cess framework is unlikely to be extended for this purpose, sources indicated.
The compensation cess, introduced in July 2017, was designed to make up for state revenue losses during the initial five years of GST implementation.
The GST (Compensation to States) Act, 2017 was enacted to ensure that the Centre should provide compensation to states—for a period of five years from the implementation of GST (July 1, 2017)—to make sure that each state’s tax revenue grow by 14 per cent annually over a base year of 2015-16. The legal window for compensation ended in June 2022, the levy was extended until March 2026 to service loans raised during the pandemic years when revenues sharply declined.
Balancing Reform With Revenue Stability
Government sources indicated that the Centre is mindful of revenue implications and has designed the GST overhaul to ensure minimal disruption. At the same time, the reform is expected to reduce compliance burden on businesses while making essentials cheaper for consumers.
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More
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