Soon after Prime Minister Narendra Modi underscored the importance of the next generation of reforms under Goods and Services Tax, the Finance Ministry proposed a two-slab GST rate structure along with special rates for select items. According to the information shared, the Central Government has sent its proposal on GST rate rationalisation and reforms to the Group of Ministers (GoM) constituted by the GST Council to examine this issue.
PM Modi Announces GST Reforms
In his address to the nation on the 79th Independence Day, PM Modi announced that GST reforms will lower the tax burden substantially and benefit small industries. He also said that these reforms will be implemented by Diwali.
Soon after the announcement, the finance ministry shared its proposal with the GoM. According to a post on X, the reforms rest on three pillars:
- Structural reforms
- Rate rationalisation
- Ease of living
Currently, GST has a 4-tier structure with rates of 5, 12, 18, and 28 per cent. However, the government has now proposed a reduction in slabs. The Centre has proposed moving towards a simple tax with two slabs - standard and merit.
Special rates on select few items
The proposal includes a reduction of taxes on common man items and aspirational goods.
"This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population," the ministry said.
According to sources, centre has proposed 5 per cent and 18 per cent rates under revamped GST regime with special 40 per cent rate on luxury and sin goods.
When the revamped structure is approved by the GST Council, 99 per cent of items in the current 12 per cent slab will move to the 5 per cent bracket. Similarly, almost 90 per cent of goods and services that are currently charged at 28 per cent would shift to an 18 per cent tax rate.
The special rate of 40 per cent would be levied only on seven items, sources said, adding tobacco would also fall under this rate, but the total incidence of taxation would continue at the current 88 per cent.
The GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising state ministers, is expected to meet in September to discuss the GoM proposal on rate rationalisation.
Earlier, PM Modi said that the time has come to undertake reforms in GST as the indirect tax regime has completed 8 years.
GST, which subsumed a host of taxes and local levies, was rolled out on July 1, 2017.
