GST Revamp – Next-Gen Reform

Source: FE

Context: Prime Minister of India announced a “next-generation” GST reform to be implemented by Diwali 2025, aiming to simplify tax slabs and reduce the burden on common citizens.

• The proposal includes two main GST rates (5% and 18%) and a special 40% rate for select sin and luxury goods.

About GST Revamp – Next-Gen Reform:

• What It Is? A major restructuring of the Goods and Services Tax (GST) system to replace the current multi-slab structure with a simplified, two-slab regime plus a special high rate for certain goods.

• A major restructuring of the Goods and Services Tax (GST) system to replace the current multi-slab structure with a simplified, two-slab regime plus a special high rate for certain goods.

• Objective:

• Reduce the tax burden on essential and standard goods. Boost consumption by making everyday items cheaper. Simplify compliance for MSMEs and small businesses. Enhance economic growth by stimulating demand.

• Reduce the tax burden on essential and standard goods.

• Boost consumption by making everyday items cheaper.

• Simplify compliance for MSMEs and small businesses.

• Enhance economic growth by stimulating demand.

• Proposed Features:

• Two Core Rates – 5% (merit goods, essential items) and 18% (standard goods & services). Special 40% Rate – For 7 items, including tobacco, alcohol, pan masala, online betting. Slab Adjustments – 99% of items in the current 12% slab to shift to 5%. ~90% of items in the 28% slab to shift to 18%. Continued Zero Rate – For essential food items. Sectoral Considerations – Labour-intensive exports (like diamonds) to retain current rates. GST Council Review – Proposal sent to states and GoM for approval before rollout.

• Two Core Rates – 5% (merit goods, essential items) and 18% (standard goods & services).

• Special 40% Rate – For 7 items, including tobacco, alcohol, pan masala, online betting.

• Slab Adjustments – 99% of items in the current 12% slab to shift to 5%. ~90% of items in the 28% slab to shift to 18%.

• 99% of items in the current 12% slab to shift to 5%.

• ~90% of items in the 28% slab to shift to 18%.

• Continued Zero Rate – For essential food items.

• Sectoral Considerations – Labour-intensive exports (like diamonds) to retain current rates.

• GST Council Review – Proposal sent to states and GoM for approval before rollout.

• Significance:

• Direct Relief to Consumers – Prices of soaps, toothpaste, mobiles, garments, and packaged foods likely to drop. MSME Boost – Lower tax rates and simplified compliance will reduce operational costs.

• Direct Relief to Consumers – Prices of soaps, toothpaste, mobiles, garments, and packaged foods likely to drop.

• MSME Boost – Lower tax rates and simplified compliance will reduce operational costs.