GST reforms were in making for 1.5 years: Nirmala Sitharaman

New Delhi [India], September 9 : Reduction and rationalisation of Goods and Services Tax slabs - reducing them to two, and exempting certain items, including premiums for health and life insurance - were 18 months in the making, Union Finance Minister Nirmala Sitharaman said at an NDTV summit Tuesday.

They were also not a response to outrageous tariffs of 50 per cent announced by Donald Trump, she stressed, responding to whispers the GST revisions were put together to spur domestic demand to counter the impact - potentially USD 48 billion - on exports to the United States.

Sitharaman said the GST framework overhaul was discussed even before last year's Union Budget, when Prime Minister Narendra Modi reminded her about relief for the 'aam aadmi'.

That was back when, delivering her eighth consecutive budget, she gave relief to middle-class taxpayers from the salaried class, which included rebates for people earning up to Rs 12 lakh.

It took time, the Finance Minister said, to work out a "worthy pack (of proposals) to present to the PM". And, she told NDTV, she could only approach the PM with GST revision plans in May.

The first step in implementing the reforms was getting state governments on board. A potentially explosive meeting of the GST Council was scheduled for September 3 and 4, at which states disgruntled over the potential loss in revenue were supposed to make presentations demanding compensation, including a second 'sin' tax to help pay demand.

However, as it turned out, there was no acrimony, Sitharaman said. The scheduled two-day meeting finished in one, with a unanimous consensus on rolling out the GST revision proposals.

"To be fair to state finance ministers, they were on board with rate rationalisation," she said.

However, Sitharaman did point out "there (has been) no compensation (for states) since 2022". She (and the states) were referring to the Compensation Cess that was earlier a component of GST. Money collected under that cess was re-routed, proportionately, to state and union territories to offset potential revenue loss in moving to the GST framework.

"The cess being collected right now will go into repaying loans availed (by state and UTs) during Covid," the Finance Minister explained. And on the topic of tax collections itself, she suggested a better way forward is to "improve collection efficiency" since that, in turn, would improve overall collections. "It is not as if the centre is sitting with a huge suitcase to pay everyone."

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