GST Council set to discuss having fewer items in 12% slab

• The next GST Council meeting is expected in July 2025, after a gap of over six months (the previous meeting was in December 2024 in Jaisalmer). It was delayed due to disagreements over the location.

• Rationalisation of the 12% GST Slab

• A major reform under discussion is the reduction or elimination of the 12% GST slab.

• The aim is to simplify the GST rate structure, which currently has multiple rates: 0%, 5%, 12%, 18%, and 28%.

• If implemented, the GST rates would be reduced to 0%, 5%, 18%, and 28%, excluding special rates (like 0.25% on diamonds and 3% on gold/silver).

• From 12% to 5%, to reduce consumer burden on essential items.

• From 18% to 12%, to address rising consumption of items once considered discretionary (e.g., toothpaste, soap) due to higher incomes.

• Simplifies tax compliance and rate structure.

• Reflects evolving consumer behaviour and economic growth.

• Service intermediaries (agents or facilitators offering services to foreign clients) are currently taxed at 18%, even for export-related services.

• The GST Council is likely to reconsider this, as such exports should ideally be zero-rated (i.e., no tax).

• Removing this tax will make Indian service intermediaries more competitive globally and could bring relief worth thousands of crores.

• Boosts export of services.

• Aligns with the principle of not taxing exports under GST.

• Input Tax Credit (ITC) Loss:

• If products are moved from the 12% to 5% slab, manufacturers may lose ITC on the taxes paid for raw materials and services.

• This could increase their effective cost, even if consumer prices drop.

• Could discourage production or lead to price adjustments.

• Experts believe the Council is unlikely to eliminate the 12% slab entirely in one step. Instead, a gradual reallocation of items across slabs is expected.