GST Council Meet on Rate Reform Begins; TDP Supports, Opposition Bloc Seeks Revenue Protection

The 56th meeting of the GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising state ministers, on Wednesday started deliberations on 'next-gen GST' reforms, which will lower tax rates on items of mass consumption, remove duty inversion in sectors, like textiles, and ease compliance burden for MSMEs.

The Council, over the next two days, will discuss reducing the number of slabs in GST to just two -- 5% and 18% -- and removing the 12% and 28% slabs. Also, a special 40% tax has been proposed on a select few items, including tobacco and ultra-luxury goods.

As per the sweeping rate change proposal put forth by the Centre and vetted by a group of state finance ministers, as many as 99% of items in the 12% category, such as butter, fruit juices and dry fruits, would move to a 5% tax rate.

Similarly, electronic items like ACs, TVs, fridges, and washing machines, as well as other goods like cement, will be among the 90% of the items that will move from 28% to a lower 18% slab.

While opposition-ruled states have demanded that all states be compensated for the revenue loss they incur post the implementation of the GST rejig, Andhra Pradesh Finance Minister Payyavula Keshav said his state is supporting the Centre's GST rate proposals.

"As an alliance partner, we are supporting the Centre's proposal of GST rate rationalisation. It is in favour of the common man," Keshav told reporters before the Council meeting. Andhra Pradesh's Telugu Desam Party (TDP) is an ally of the BJP-led NDA government at the Centre.

Prime Minister Narendra Modi, in his Independence Day speech on August 15, unveiled the plan for GST reforms. Shortly thereafter, the central government shared a blueprint of the planned reform with a Group of Ministers (GoM) from different states for initial vetting.

As many as eight sectors -- textiles, fertiliser, renewable energy, automotive, handicrafts, agriculture, health and insurance -- will benefit the most from the rate overhaul, as per the Centre's blueprint for GST reforms.

On Wednesday morning, before the Council meeting, eight opposition-ruled states -- Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal -- had their own meeting to formalise their strategy and reaffirmed their demand for revenue protection to give approval to the rate rejig.

Jharkhand Finance Minister Radha Krishna Kishore told reporters here that his state will suffer a ₹2,000 crore revenue loss if the Centre's GST rate reform proposal is implemented.

"If the Centre agrees to compensate us for whatever loss we would incur, then we have no issues in approving the agenda before the Council. I don't think the issue will come up for voting, as in a federal structure, it is the responsibility of the Centre to compensate states for revenue loss," Kishore told reporters here after the meeting of the opposition bloc.

Under the present GST structure, the 18% slab accounts for a lion's share or 65% in GST collection. The 5% slab contributes 7% to the total GST kitty.

The top tax bracket of 28% on luxury and sin goods contributes 11% of the revenue, while the 12% slab accounts for just 5% of the revenue.

The Centre's GST reform proposal put forth before the Council rests on three pillars -- structural reforms, rate rationalisation and ease of living.

The structural reforms would ensure stability and predictability by providing "long-term clarity on rates and policy direction to build industry confidence and support better business planning".

On the 'ease of living' side, the finance ministry's proposal includes seamless, technology-driven GST registration, especially for small businesses and startups. It also suggested the implementation of pre-filled GST returns and faster, automated processing of refunds for exporters and those with an inverted duty structure.

"The next generation GST reforms... will set an economy absolutely open and transparent in the coming months and with further reduction in compliance burden, (reforms) will be making it easier for small businesses to thrive," Sitharaman had said on Tuesday at the Foundation Day celebrations of Tamil Nadu-based City Union Bank.