Speaking at the India summit organized by The Economist in the capital, the Finance Minister Arun Jaitley said that the GST slab might be collapsed to a single slab rather than the standard rates of 12% and 18%. He said that once GST settles down, the GST Council may consider the idea of reducing the slabs.

“I do see a situation where, assuming tax compliance remaining high and the transition smooth, the GST Council, the first federal institution, which is sensitive to the challenges of time, can take the appropriate decision (on tax slabs) taking into account its impact on inflation,” the finance minister said.

The Council chose to keep our rates—5%, 12%, 18% and 28%— instead of a single rate as the consumers fall under different income groups. However, income diversity makes it difficult to tax luxury cars and items of daily consumption at the same rate. Hence, the council kept the many products at lower rate of taxes (5% and 12%) which ensured that the GST rollout did not have an inflationary effect.

The government thinking aloud on reducing the number of GST slabs is considered a welcome development. The indirect tax reform has led to an increase in the tax base, which substantially increases the government’s ability to spend on development schemes. Meanwhile, the direct tax base is also expanding, Jaitley pointed out, adding that he hopes to end 2017-18 with a tax-to-gross domestic product ratio of 11.3%.

Sources –Livemint

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