Medicines & Tractors Delay GST Reform on 12% Slab

1. Background: Government Plans to Scrap 12% GST Slab

The Goods and Services Tax (GST) currently has multiple tax slabs: 5%, 12%, 18%, and 28%.

The GST Council is considering merging the 12% slab into other existing slabs to simplify the tax structure.

However, some items under the 12% category are essential in nature, which is causing policy complications.

2. Key Sticking Points: Medicines and Tractors

Two major categories under the 12% slab are creating roadblocks in this reform:

Medicines – including allopathic, ayurvedic, homeopathic, and veterinary drugs, plus diagnostic kits and surgical dressings.

Tractors – classified as agricultural equipment and currently taxed at 12%.

3. Impact on Medicines if Slab is Removed

If the 12% GST slab is scrapped:

Medicines would need to move to the 5% slab.

This could benefit consumers with lower prices but would also reduce government revenue.

The estimated revenue loss from medicines is part of the Rs 3,000–4,000 crore total.

4. Challenges with Tractors

Tractors cannot be moved to the 18% slab:

They are essential for agriculture and taxed at a concessional rate.

Increasing tax on tractors may impact farmers and trigger socio-political backlash.

Proposal: Exempt tractors from GST without Input Tax Credit (ITC) to avoid tax inversion (when input tax is more than output tax).

5. Revenue Considerations

Removing these two categories from the 12% bracket could cause a significant loss of Rs 3,000–4,000 crore in revenue.

The government is weighing economic and social impacts versus fiscal outcomes.

6. Current Status: Ongoing Deliberations

While there is a general consensus to eliminate the 12% GST slab, these two items are delaying implementation.

States are cautious about making a move that affects essential sectors like healthcare and agriculture.