Compensation Cess May Be Merged with GST
• After 8 years, the compensation cess on sin and luxury goods (e.g., tobacco, aerated drinks, cars) may be merged into GST rates.
• The cess, introduced to compensate states for GST transition losses, is currently set to end by March 2026.
No Impact on Consumer Prices (in Total)
• The integration will not change final prices, but the GST rate itself will rise to absorb the cess.
Revenue Sharing with States
• Currently, cess proceeds go to the Centre.
• Post-merger, GST (including the earlier cess portion) will be shared with states via CGST–SGST mechanism, increasing state revenue.
• 12% GST Slab Likely to Be Removed
• Centre proposes to remove the 12% slab to simplify GST rates.
• Items in this slab may move to 5% (benefiting consumers) or 18% (increasing prices).
Impact on Common Goods
• Items in 12% slab: Cheese, confectionery, preserved fish, certain footwear, apparel, bricks, clean energy devices.
• Moving to 5% slab could lower prices and boost consumption.
• Shift to 18% slab could raise prices and affect sentiment.
Pharma Sector Adjustments
• Essential life-saving drugs will remain at 0–5% GST.
• Government may consider moving other critical pharma items (now under 12%) to 5%.
• Policy Timing and GST Council Meeting
• GST Council, chaired by FM, may meet in July or after Monsoon Session.
• Proposals may be considered in light of the upcoming Sixteenth Finance Commission (SFC) report for FY27 onward.
Expert View
• Eliminating 12% slab will reduce classification disputes, simplify compliance, and align with global best practices.
• A more predictable GST structure could help in inflation control and stimulate demand.