The Prime Minister’s Office has given in-principle approval for a sweeping GST revamp, including a proposal to abolish the 12% tax slab. Goods currently taxed at this rate may be reassigned to either the 5% or 18% bracket to simplify the structure
Why It Matters
- Streamlined tax regime: Consolidating slabs reduces complexity, litigation, and compliance burdens
- Consumer price impact: Everyday items could become cheaper if moved to 5%, while some might see a marginal increase if moved to 18%
- Fiscal balance: The government aims for a revenue-neutral outcome by adjusting slab shifts carefully, balancing state and central interests
- Boost to economic activity: Easier navigation of the tax regime could spur business growth and support free trade deal negotiations
What’s Next?
The proposal is expected to be discussed during the GST Council’s August meeting, with consultations led by Home Minister Amit Shah alongside states and ministries Financial Express. Final implementation is likely to include transitional timelines for affected products.
Key Issues Under Consideration
- Scope of reclassification: Categories like packaged food, household items, and tractors may shift between 5% and 18% depending on policy aims
- Revenue protection: States may push to compensate for any revenue loss, possibly through reshaping the compensation cess or introducing alternative levies
- Healthcare and essentials: Medicines and insurance policies may also be re-evaluated—insurers aim for lower GST, while pharma advocates urge careful treatment of affordability adjustments .
Implications for Businesses & Consumers
- Pricing shifts: Corporates must update billing systems, renegotiate contracts, and manage ITC (Input Tax Credit) adjustments
- Compliance ease: A simpler tax rate structure benefits small and medium enterprises by reducing classification errors and compliance load
- Transition planning: Companies should engage with tax advisors now to prepare for upcoming revisions
✅ Conclusion
Government backing for removing the 12% GST slab marks India’s first major overhaul of the tax regime since 2017. If approved, the changes aim to simplify taxation for consumers and businesses alike, while maintaining revenue balance and preparing the country for future economic expansion.
