The Group of Ministers (GoM) on Rate Rationalisation, comprising ministers from six states — Kerala, Uttar Pradesh, Rajasthan, West Bengal, Bihar, and Karnataka — is set to meet next week to discuss the next-generation Goods and Services Tax (GST) reforms proposed by Prime Minister Narendra Modi.
The proposal, shared with the states ahead of the PM’s Independence Day address, seeks to overhaul the current multi-slab GST structure into a simplified two-pillar system of 5% and 18%, with a special 40% rate for sin and demerit goods.
According to sources in the Union Finance Ministry, the Department of Revenue will present detailed calculations to the GoM. Internal assessments suggest that GST revenues under the new structure will remain buoyant, supported by higher compliance and consumption. Essential goods and services, along with inputs for farmers, MSMEs, and small entrepreneurs, would attract the 5% rate, while most others would fall under the 18% bracket.
Currently, GST has multiple slabs — 5%, 12%, 18% and 28% — along with compensation cess. With the Centre repaying loans raised to fund compensation by the year-end, cess rates are proposed to be merged into the 40% slab for sin goods such as pan masala, tobacco, cigarettes, and luxury items.
The reform also aims to revamp GST processes with measures such as pre-filled returns, faster refunds (especially crucial for exporters and MSMEs), and smoother digital compliance to reduce disputes and mismatches.
Officials said the new structure is intended to eliminate complexities and inversions in the system that had led to tax gaming and revenue leakages in the past. “This is a holistic revamp of GST, not piecemeal tinkering,” a senior official noted.
The Centre is targeting a rollout ahead of Diwali, with at least three rounds of discussions expected before the final proposal goes to the GST Council. However, political consensus with the states will be key.
“Technically, the states should be convinced. Politically, one has to see how they respond,” an official said.
