The central government has proposed a simplified two-tier GST (Goods and Services Tax) system with a ‘standard’ and ‘merit’ slab, alongside special rates for select goods, Finance Ministry announced on Friday.
The proposed GST rate overhaul will replace current slabs of 5, 12, 18, 28%. 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. Key areas identified for next-generation reforms include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers.
Reforms will also seek to reduce classification-related disputes, correcting inverted duty structures in specific sectors, ensuring greater rate stability, and further enhancing ease of doing business. These measures would strengthen key economic sectors, stimulate economic activity, and enable sectoral expansion.
The announcement comes after Prime Minister Narendra Modi earlier today said that the next generation reforms in GST will be unveiled by Diwali, which will provide ‘substantial’ tax relief to common man and benefit small and medium enterprises.
Key changes proposed by the Finance Ministry:
- 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.
- Reduction of slabs: Essentially move towards simple tax with 2 slabs – standard and merit. Special rates only for select few items.
- Compensation Cess: The end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.
- Inverted duty structure correction: The correction of inverted duty structures to align input and output tax rates so that there is a reduction in the accumulation of input tax credit. This would support domestic value addition.
- Resolving classification issues: Resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.
- Stability and Predictability: Provide long-term clarity on rates and policy direction to build industry confidence and support better business planning.
- Registration: seamless, technology-driven, and time-bound, especially for small businesses and startups.
- Return: Implement pre-filled returns, thus reducing manual intervention and eliminating mismatches.
- Refund: Faster and automated processing of refunds for exporters and those with inverted duty structure.
The government has previously said that it wants to change GST rates and reduce the number of brackets, referring to tax rates for different categories, under a tax regime introduced in 2017.
In 2024-25, gross GST collections hit a record Rs 22.08 lakh crore, marking a year-on-year growth of 9.4 per cent. This rise reflects the growing formalisation of the economy and improved tax compliance.
GST, which subsumed a host of taxes and local levies, was rolled out on July 1, 2017.
Source #ET
