A key meeting of the Group of Ministers (GoM) on GST rate rationalisation on Thursday ended with state finance minister accepting the Centre’s plan to reduce the number of tax slabs. 

The proposal, placed before the six-member GoM led by Bihar Deputy Chief Minister Samrat Choudhary, aims to replace the current four rates of 5, 12, 18 and 28 per cent with just two main slabs.

Under the new structure, ‘merit’ goods and services will attract 5 per cent GST, while most other items (standard) will come under an 18 per cent standard rate.

A higher 40 per cent levy will remain on a small set of so-called sin goods. Examples include alcohol, tobacco, drugs, gambling, soft drinks, fast food, coffee, sugar, and even pornography.

A sin tax is a special tax that the government puts on such goods. The purpose is to discourage people from using them and to reduce the harm they can cause.

Finance Minister Nirmala Sitharaman, addressing the two-day GoM meeting earlier, had said that a simplified system would benefit the common man, farmers, the middle class and small businesses, while also making GST more transparent and growth-oriented.

As part of the changes, almost all items currently in the 12 per cent category will move to the 5 per cent slab.

Similarly, most products taxed at 28 per cent will shift to the 18 per cent bracket, which the Centre believes will improve compliance and reduce complexity.

The GoM also reviewed the Centre’s suggestion to exempt GST on individual health and life insurance premiums.

While most states supported the idea, they flagged the need for strict oversight to make sure insurance companies actually pass on the benefit to customers. The exemption is estimated to cost about Rs 9,700 crore in annual revenue.

The final decision on the recommendations will be taken by the GST Council in its next meeting slated for September.