Government Proposes Major GST Revamp with Two Tax Slabs
The central government has reportedly proposed a significant overhaul of the Goods and Services Tax (GST) regime, aiming to simplify it into two primary rates: 5% and 18%. According to sources, most items currently in the 12% slab would shift to 5%, while many goods and services now taxed at 28% would move to the 18% slab. A special rate of 40% would be reserved for just seven luxury and sin items. This structural change, expected by Diwali, aims to boost consumption.
Unpacked:
The government aims to reduce complexity, minimize litigation and tax evasion, and make the system more transparent. Simplifying GST is also expected to lower prices of everyday goods and boost both domestic consumption and export competitiveness, helping the broader economy.
A special 40% rate is planned for seven luxury and 'sin' items, such as tobacco and pan masala. These products are considered demerit goods due to their negative social or health impacts and will not benefit from the rate reduction.
Most goods currently taxed at higher 12% and 28% rates will move to 5% and 18%, respectively, reducing costs for consumers. Everyday essentials, household goods, and services like insurance and education are set to become cheaper, benefiting households, farmers, and small businesses.
The proposals are under review by the GST Council, which consists of finance ministers from all states and is chaired by the Union finance minister. The Council will decide whether to accept, modify, or reject the changes. Implementation is expected by Diwali, as announced by the Prime Minister.