Can the 12% GST Slab Be Done Away With to Simplify the Tax Framework?

The ongoing discussion around the Goods and Services Tax (GST) structure in India has raised questions about the viability of the 12% GST slab, which currently contributes only about 5% to the overall GST revenue. This makes it the least significant revenue-generating slab compared to others like the 18% slab, which accounts for 73% of the revenue.

Current GST Structure

India’s GST framework comprises four main slabs:

5%: Covers essential items and accounts for approximately 8% of total revenue.

12%: Covers a range of goods, including some essential items, contributing only about 5%.

18%: Dominates the GST revenue with 73%, covering consumer electronics, services, and more.

28%: Targets luxury and sin goods, contributing around 12.5% to the revenue.

Proposal to Remove the 12% Slab

The suggestion to eliminate the 12% slab is based on its low contribution to total GST revenue and aims to simplify the tax framework. The Group of Ministers (GoM) is set to review this issue, especially concerning essential items currently taxed at 12%.

Potential Advantages of Removal:

  1. Simplification of Tax Structure: Reducing the number of tax slabs could streamline compliance for businesses and consumers alike, reducing administrative burdens.
  2. Increased Revenue Efficiency: Moving items from the 12% slab to the 5% or 18% slabs could enhance revenue generation without increasing the tax burden on consumers significantly, as essential goods could be moved to a lower slab or less essential goods could be taxed higher.
  3. Addressing Revenue Disparities: It would create a more balanced revenue distribution among tax slabs, helping to stabilize overall GST revenue.

Considerations and Challenges

  1. Impact on Consumers: Items currently taxed at 12%, such as certain food products and Ayurvedic medicines, may see price fluctuations if moved to higher slabs.
  2. Sector-Specific Effects: Industries that rely on the 12% slab could be adversely affected, necessitating careful transition planning.
  3. Stakeholder Pushback: Businesses that benefit from the current 12% slab may resist changes, fearing increased costs.

Conclusion

The debate surrounding the potential elimination of the 12% GST slab highlights the broader goal of refining India’s tax framework for better efficiency and equity. While removing this slab could simplify the system and improve revenue generation, careful consideration of its impacts on consumers and industries is crucial. The upcoming GoM meeting is expected to provide further insights into the feasibility of such changes, especially concerning essential items that currently fall under the 12% category.

GST #TaxReform #12PercentGST #RevenueGeneration #TaxSlabSimplification

Share on Facebook Share on Twitter