The Goods and Services Tax (GST) Council is reportedly considering a significant overhaul of the current tax structure, potentially leading to the removal of the 12% GST slab. This move, expected to be discussed in the Council's next meeting in late June or July 2025, aims to simplify the existing four-tier system and improve tax compliance. Currently, India has GST slabs of 5%, 12%, 18%, and 28%.

The proposal to eliminate the 12% slab has gained considerable support from both Union and state government officials, as well as experts advising the Group of Ministers (GoM) on rate rationalization. There's a growing consensus that the 12% slab no longer holds significant relevance.

Potential Impact on Items and Consumers

If the 12% slab is indeed removed, items currently taxed under it will likely be shifted to either the 5% or 18% slabs. This realignment could have varied effects on the prices of goods and services.

• Items Likely to Become Cheaper: Essential items and goods used by the common person, currently under the 12% slab, may be moved to the 5% slab. This could include items like spices and kerosene, potentially leading to lower prices for consumers. Certain medical items, such as ostomy and orthopedic appliances, could also become cheaper if moved to the 5% slab.

• Items Likely to Become More Expensive: Conversely, many items currently in the 12% bracket may be moved to the 18% slab. This could include a wide array of goods, such as detergents, plastic products, suitcases, handbags,mobiles,umbrellas and a variety of processed foods. Services like telecom, insurance, and banking could also become more expensive. This shift could potentially increase the tax burden on certain goods, leading to higher prices for consumers.

Items Currently Under the 12% Slab:

A wide variety of goods and services currently fall under the 12% GST slab. These include:

• Food items such as condensed milk, cheese, pasta, sausages, jams and jellies, and fruit juice-based drinks
• Daily-use items like tooth powder, feeding bottles, carpets and umbrellas
• Apparel such as caps, bicycles, specific household utensils, and footwear priced lower than ₹1,000
• Other items like furniture made of cane or wood, pencils and crayons, handbags and shopping bags made of jute or cotton, diagnostic kits, and marble and granite blocks
• Services such as specified construction work, hotel rooms up to ₹7,500 per day, and transport of passengers by air in non-economy classes

Rationale Behind the Move

The primary motivation behind removing the 12% slab is to simplify the GST structure. A streamlined tax system with fewer slabs is expected to reduce compliance complexities and make it easier for businesses to manage their tax obligations. Many developed countries use just one or two GST slabs.

Concerns and Considerations

While the proposed change aims to simplify the tax system, there are concerns about its potential impact on revenue and inflation. Moving items from the 12% to the 18% slab could increase costs for semi-essential goods, potentially burdening consumers. It's crucial to ensure that the tax rate rationalization is revenue neutral, meaning that the changes do not negatively impact the overall tax revenue.

Experts suggest a phased approach to mitigate potential price increases and avoid disruptions in the supply chain. Clear guidelines will be essential to ensure a smooth transition and address any classification challenges that may arise. The GST Council will need to carefully assess the revenue implications of shifting items between different tax slabs to maintain accessibility and affordability for consumers.