The GST Council is scheduled to meet on September 9 to explore the rationalization of GST rates. According to Finance Minister Nirmala Sitharaman, while the meeting will review the current rate structure, no decisions on rate changes will be made at this time. The results will be referred to the Group of Ministers (GoM) for further review.
A team of officers will present a detailed overview of existing GST rates during the September session, serving as a basis for the GoM's further deliberations. Sitharaman noted that the review will involve a careful comparison of each rate with the revenue-neutral rate (RNR).
Maintaining revenue neutrality poses a significant challenge, given that major changes to GST rates could disrupt revenue flows for both state and federal governments. An RBI report showed that the revenue neutral rate (RNR) was estimated at 15.3%, yet the weighted average GST rate had decreased to 11.6% by September 2019, with indications of a further decline.
The GST system features five main tax slabs: 0%, 5%, 12%, 18%, and 28%, plus a compensation cess from 1% to 290% for luxury and demerit items exceeding the top slab. While there have been ongoing discussions about consolidating some slabs, no formal resolutions have been reached.
The Council will also consider the future of the compensation cess levy, which is set to continue until March 2026 to cover state compensation loans. Some states have suggested reassessing this timeline, as loan repayments might be completed earlier than expected.
In a recent session, the newly formed GoM on rate rationalization, led by Bihar's Deputy Chief Minister Samrat Chaudhary, showed a tendency to retain the existing GST slabs. The GoM is also evaluating suggestions for lowering GST rates on health and life insurance premiums. A detailed rate rationalization proposal will be discussed at the September 9 Council meeting, with further deliberations anticipated by the end of September.
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