In a move that could finally offer respite to millions of Indian households, the government is reportedly considering a significant overhaul of the Goods and Services Tax (GST) rate structure. Sources indicate that a proposal to reduce GST on essential items from the current 12% to 5% or eliminate the 12% slab entirely is actively under discussion. The move, if cleared, could drastically bring down prices of widely consumed goods such as ghee, soaps, processed foods, and other FMCG staples.
A Long-Delayed Revision
The buzz around this rate rejig isn’t new. Rationalisation of GST slabs has been a long-standing item on the Council’s reform agenda since GST was implemented in July 2017. Over the years, the system that promised simplicity and uniformity has become increasingly complex, with multiple slabs—0%, 5%, 12%, 18%, and 28%—often causing classification disputes and compliance burdens for businesses. Experts and industry bodies have repeatedly flagged the 12% slab as anomalous, housing a disproportionate number of goods used by the middle class and economically weaker sections.
This slab restructuring, if implemented, would mark the first comprehensive reclassification of goods in several years. It may also be the beginning of the larger goal: to eventually collapse the multiple slabs into a simpler two-rate system, which has been under active theoretical discussion but is politically difficult to execute due to concerns over revenue neutrality.
Essentials Under the Microscope
Goods currently taxed at 12% include a wide array of daily use items like packaged snacks, ghee, soaps, toothpastes, namkeen, processed foods, and household hygiene products. These are not luxury goods; they form the bulk of monthly purchases in middle-income and lower-income Indian homes. Any tax cut here will have a direct impact on consumption affordability, especially in the context of recent inflationary pressures.
What makes this development particularly notable is the timing: with national elections on the horizon, there is a renewed political urgency to demonstrate pro-consumer reform. Lowering GST on these essentials can be positioned as a relief measure for the “aam aadmi,” potentially countering inflation narratives.
Why Now?
While the GST Council has discussed slab rationalisation multiple times in the past, the exercise has been postponed repeatedly due to concerns around revenue shortfalls and the pandemic-led slowdown. However, with GST collections now showing consistent strength, averaging well over ₹1.5 lakh crore per month, and compensation cess surpluses accumulating, the fiscal headroom to undertake such a change seems more realistic today.
Moreover, recent debates around ending the compensation cess regime have re-ignited the broader conversation about making GST more efficient and less burdensome, especially for the common man. The current discussion also aligns with the broader government narrative of inclusive economic growth and simplifying indirect taxation.
The Road Ahead
A final decision on the proposal is expected to be taken in the upcoming 56th meeting of the GST Council, which could convene later this month. As per protocol, a 15-day notice is mandatory for such meetings. Once convened, the Council, chaired by the Union Finance Minister and comprising finance ministers of all states, has the authority to recommend changes in tax rates.
If the Council approves the proposal to remove or reclassify the 12% slab, it will be one of the most consequential GST reforms since the tax regime’s inception. The move would not only benefit consumers but also provide a much-needed clarity to businesses operating in FMCG, food processing, personal care, and other allied sectors.
It may also set the stage for further rationalisation in the months to come, as the government balances political, economic, and administrative considerations in its attempt to make GST more citizen-friendly.