The long lasting success of Goods and Services Tax (GST) lies in moving towards a single nationwide tax rate, and that GST 2.0 must act as the stepping stone by keeping to just two slabs, 5 per cent and 18 per cent while capping the peak rate firmly at 18 per cent, not 40 per cent, according to a report by Think Change Forum.
The report strongly recommended pegging the peak indirect tax rate, including cesses, to 18 per cent. “Creating a 40 per cent slab, even for a narrow set of sin or luxury goods, will set a precedent for creeping expansion. Over time, more items will be drawn into this category, undermining the very purpose of simplification,” it said.
“This will remove anomalies such as inverted duty structures, cut down grey and illegal markets, reduce litigation and compliance burdens in one stroke and restore credibility to the GST system. By reducing distortions, India can drive higher consumption, expand compliance, and over time generate massive tax collections to fuel its ambition of becoming a developed economy,” it added.
The report suggested a ‘cess rulebook’ with guidelines on when and how cesses can be levied or adjusted. It will help predictability in tax planning and restore credibility to India’s indirect tax regime”.
The GST Council is scheduled to meet on 18 to 19 September to decide on the proposal. The reform package, aligned with Prime Minister Narendra Modi’s Independence Day assurance of ‘next-generation GST reforms before Diwali,’ is anchored on three principles: structural reforms, rationalised rates and ease of living. The government, including finance ministers of all states and UTs, will deliberate on the recommendations by the three GoMs on rate rationalisation, compensation cess and health and life insurance.
Finance Minister Nirmala Sitharaman, on 20 August 2025, briefed groups of ministers (GoMs) from states on the government’s roadmap for an overhaul of the GST, emphasising reforms that aim to reduce tax rates and ease compliance for businesses. Under the plan, GST would be streamlined into two primary slabs of 5 per cent and 18 per cent, with a special 40 per cent rate applied to about five to seven demerit goods, including pan masala, tobacco and online gaming.
At present, GST is charged at 5, 12, 18 and 28 per cent. Essential and food items are mostly taxed at nil or 5 per cent, while luxury and sin goods fall under the 28 per cent category, along with an additional cess.
The Finance Ministry proposed eliminating the existing 12 per cent and 28 per cent brackets to simplify the structure and bring down consumer costs. Goods would be broadly classified into two categories: ‘merit’ goods taxed at 5 per cent, covering items that benefit middle-class households, MSME’s and farmers and ‘standard’ goods taxed at 18 per cent, representing the majority of products and services.
Nearly 99 per cent of items currently in the 12 per cent category could shift to 5 per cent once rationalisation is implemented.
Source from: https://www.businessworld.in/article/report-says-gst-success-lies-in-single-tax-rate-569661
