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.
- Objective:
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- 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:
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- 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.
- Significance:
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- 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.
