GST reform plan aims to light consumption spark

Tax exemption on health insurance, twin-slab system, new levy on agenda

- Gireesh Chandra Prasad

The federal GST Council begins a two-day meeting today to chart the biggest overhaul of the indirect tax regime since its debut seven years ago, aiming to spark a consumption-led recovery in the face of global trade uncertainties that have dampened private investment and job growth.

The proposals before the Council attempt to lower costs, raise output and stimulate economic activity, especially in agriculture, textiles, fertilizers, construction, transport, renewable energy, handicrafts and insurance, two persons informed about the matter said.

On the Council's table are proposals to exempt GST on health insurance premiums at a cost of about ₹10,000 crore a year; shift close to 50 products in the 12% slab including condensed milk, cheese, dried fruits and preserved fish and vegetables to 5%; and move close to 25 items including chocolates, ice cream, cakes and corn flakes in the 18% slab to 5%.

Pan masala, tobacco and caffeinated drinks are set to move from 28% to 40%. The existing GST compensation cess on these items will expire later this year, but another levy may take its place following requests from several states, though the final form of that levy is still under discussion, one of the two people said on the condition of anonymity.

These are part of the central government's proposals which were endorsed by a ministerial group led by Bihar deputy chief minister Samrat Chaudhary last month and will be placed before the Council on Wednesday.

While there is broad consensus on the Centre's proposals and the tax relief to the common man announced by Prime Minister Narendra Modi in his Independence Day speech this year, eight non-BJP states have flagged their concerns about immediate revenue loss on account of the proposed tax cuts.