Tax Slab Of 18% To Contribute Lion's Share Of GST Revenue After Proposed Changes

The 18% tax slab is expected to remain the major contributor to GST revenues if the Centre's proposal for a two-tier GST structure and a special 40% rate is implemented, according to a source.

At present, the Goods and Services Tax follows a four-tier structure with rates of 5%, 12%, 18%, and 28%. Food and essential items are either exempt or taxed at 5%, while luxury and sin goods attract the highest rate of 28%.

The 5% slab contributes around 7% to total GST revenues, while the 18% slab accounts for a dominant 65%. The 12% and 28% slabs contribute approximately 5% and 11%, respectively, to the GST collection.

The Centre has proposed to the Group of Ministers on GST rate rationalisation a 2-tier rate structure of 5 and 18% for 'merit' and 'standard' goods and services, and a 40% rate for about 5-7 goods. The proposal entails doing away with the current 12 and 28% tax slabs.

"The 18% slab will continue to account for a lion's share in the GST revenues as per the Centre's proposal. We expect volumes to go up and a consumption boost which will help improve the GST revenues from the current level," the source said.

Once the goods and services are categorised as merit and standard, 99 per cent of the items in the 12% bracket will move to 5%, with the remaining moving to 18%.

Also, 90% of the goods and services in the 28% bracket will move to 18% and only 5-7 items will go up to 40% rate.

The average monthly GST collection has risen from Rs 1.51 lakh crore in FY22 to Rs 1.84 lakh crore in FY25.

GST, which subsumed over a dozen local levies and cesses, was rolled out on July 1, 2017. The number of registered taxpayers has risen from 65 lakh in 2017 to over 1.51 crore.