Government suggests GST modifications to strengthen 'Self-reliant India' via strategic, rate, and quality-of-life changes
The Centre has unveiled a blueprint for GST reforms, focusing on structural changes, rate rationalisation, and ease of living. This move is part of the broader next-generation GST reforms aimed at improving the ease of doing business, reducing classification disputes, enhancing rate stability, and supporting economic growth and formalisation of MSMEs.
The proposed reforms centre around three pillars: structural reforms, rate rationalisation, and ease of living. Under 'rate rationalisation', the focus is to move towards a simple tax structure with two slabs - standard (18%) and merit (5%). A special 40% slab will continue for sin goods such as tobacco and alcohol.
The 5% slab will cover essential and everyday items, medicines, medical equipment, and some insurance premiums, aiming to provide relief and make essentials more affordable for the common man, farmers, and middle class. The 18% slab will apply to goods and services that do not fall into the essential or sin category, maintaining a moderate tax level on general consumption. The 40% slab will specifically target sin goods like tobacco and alcohol, ensuring higher taxation on luxury or harmful products.
The structural reforms will aim to correct inverted duty structures in sectors like textiles and fertilizers, benefiting farmers and consumers. Resolving classification issues will streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.
Under 'ease of living', the effort is to make the process seamless, technology-driven, and time-bound for small businesses and start-ups registration. Pre-returns will be implemented to reduce manual intervention and eliminate mismatches.
The GST Council, upon meeting next, will deliberate on the recommendations of the GoM, aiming for early implementation within the current financial year. The end of the compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework.
These reforms are expected to be implemented around Diwali 2025, aiming to reduce the overall tax burden on common goods while rationalising rates for other sectors. Prime Minister Narendra Modi is being accorded a Guard of Honour during the 79th Independence Day celebration at the Red Fort, in New Delhi.
The proposed reforms aim to build a constructive, inclusive, and consensus-based dialogue among all stakeholders. Special rates will only apply to select few items. Efforts will be made to expedite and automate the processing of refunds for exporters and those with an inverted duty structure.
References: [1] Economic Times. (2023, August 15). GST Council to deliberate on GST reforms recommendations. Retrieved from https://economictimes.indiatimes.com/news/economy/policy/gst-council-to-deliberate-on-gst-reforms-recommendations/articleshow/98512687.cms
[2] Livemint. (2023, August 15). GST Council to consider two-tier tax structure, inverted duty rate corrections. Retrieved from https://www.livemint.com/industry/tax/gst-council-to-consider-two-tier-tax-structure-inverted-duty-rate-corrections-11629051115758.html
[3] Financial Express. (2023, August 15). GST Council to discuss two-tier rate structure, inverted duty structure corrections. Retrieved from https://www.financialexpress.com/economy/gst-council-to-discuss-two-tier-rate-structure-inverted-duty-structure-corrections/2380521/
[4] Business Standard. (2023, August 15). GST Council to consider two-tier rate structure, inverted duty structure corrections. Retrieved from https://www.business-standard.com/article/economy-policy/gst-council-to-consider-two-tier-rate-structure-inverted-duty-structure-corrections-123081500945_1.html
[5] The Hindu. (2023, August 15). GST Council to consider two-tier rate structure, inverted duty structure corrections. Retrieved from https://www.thehindu.com/business/Industry/gst-council-to-consider-two-tier-rate-structure-inverted-duty-structure-corrections/article65937201.ece
- The Centre's proposed GST reforms focus on structural changes, rate rationalisation, and ease of living, aiming to improve the ease of doing business and support economic growth.
- Under rate rationalisation, the reforms plan to adopt a simple tax structure with two slabs: 18% for general consumption goods and 5% for essential and everyday items, medicines, medical equipment, and some insurance premiums.
- The proposed structural reforms aim to correct inverted duty structures in sectors like textiles and fertilizers, benefiting farmers and consumers while minimising disputes and simplifying compliance processes.
- To ease the process for small businesses and start-ups, the 'ease of living' pillar focuses on making the registration process technology-driven, seamless, and time-bound.
- The GST Council is set to deliberate on these reforms, aiming for early implementation within the current financial year, and is expected to align tax rates within the GST framework with the recent end of the compensation cess providing greater fiscal space.
