Why in News?
The Group of Ministers (GoM) on GST rate rationalisation has endorsed the Centre’s proposal to merge the 12% and 28% slabs into a simplified two-rate GST structure. The recommendation now awaits final approval from the GST Council.
Description:
- Concept first proposed in 2000 (Atal Bihari Vajpayee Government).
- Empowered Committee of State Finance Ministers created to draft GST structure.
- Kelkar Committee (2005) recommended GST rollout.
- 101st Constitutional Amendment Act, 2016 introduced GST.
- Implemented in July 2017 with the slogan “One Nation, One Tax”.
GST Tax Structure:
- 4 Main Slabs: 5%, 12%, 18%, 28%.
- Types of GST:
- CGST – levied by Centre.
- SGST – levied by States.
- IGST – on inter-state supply (adjusts CGST + SGST).
Objectives of GST:
- Avoid cascading effects (tax on tax).
- Create a Unified National Market.
- Enhance tax compliance (IT-based system).
- Boost Make in India & exports.
- Discourage tax evasion.
Role of GST Council:
- Created under Article 279A.
- Members: Union Finance Minister (Chair), MoS (Finance), State Finance Ministers.
- Functions: Recommend GST rates, exemptions, laws, and procedural frameworks.
Why Rate Rationalisation is Needed?
- Multiplicity of slabs (5%, 12%, 18%, 28% + cess) → creates complexity.
- Compliance issues for small businesses.
- Industry demand → move towards a 3-slab structure.
- Half of items taxed at 18% → considered high.
- Need to ensure revenue stability while simplifying.
Issues in Current GST System:
- Multiple tax rates unlike global practice (usually single/slabs).
- New cesses (compensation cess) increased complexity.
- Trust deficit → Centre-State disputes over compensation.
- Exclusions: Petroleum, electricity, alcohol, real estate remain outside GST.
- Complex filing requirements (annual + quarterly returns).
- High rates on essentials (e.g., oxygen concentrators 12%, vaccines 5% during COVID).
Significance of Rationalisation:
- Simplifies compliance for businesses.
- Reduces classification disputes.
- Encourages investment certainty.
- Enhances tax buoyancy without overburdening consumers.
- Strengthens fiscal federalism via transparent revenue sharing.
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