In a big cheer for the middle class and common man, Prime Minister Narendra Modi on Friday announced upcoming Goods and Services Tax (GST) reforms. Speaking from Red Fort on the occasion of the 79th Independence Day, PM Modi promised a Diwali gift for people in the form of GST reforms and lower tax burden.“This Diwali, I am going to make it a double Diwali for you… Over the past eight years, we have undertaken a major reform in GST… We are bringing next-generation GST reforms. This will reduce the tax burden across the country,” he said.Also Check | PM Modi’s Independence Day speech Live UpdatesMeanwhile, in the midst of discussions about reducing GST for various products, a group of state ministers, led by Bihar’s Deputy Chief Minister Samrat Chaudhary, is scheduled to meet next week. Some members of the GoM, particularly those from the Opposition, have recommended keeping the current slabs and rates unchanged due to concerns about potential negative effects on revenue. However, the government has already done considerable work on this issue. Another group of state ministers is also addressing the matter of applying lower or zero GST on health and term life insurance, where there is less resistance, and a decision is expected soon.In the coming weeks, the government and states are anticipated to collaborate on overhauling the eight-year-old tax system, including revising the cess, which could help offset some potential revenue losses for the states.
Next-generation GST reforms: What to expect?
In July, it was reported that the Prime Minister’s Office (PMO) has given preliminary approval for a major restructuring of the GST system. The most notable change for the common man could be the potential adjustment of GST rates, with items currently taxed at 12% possibly moving to the 5% category, according to an ET report.The existing GST system includes five tax rates: nil, 5%, 12%, 18%, and 28%, along with special rates of 0.25% and 3% for precious metals. About 21% of goods are currently taxed at 5%.The 12% rate applies to 19% of items, while 44% fall under the 18% rate. Only 3% of items are taxed at the highest rate of 28%.An additional compensation cess is levied on certain luxury and harmful products, like cigarettes and automobiles, in the 28% bracket. This cess was introduced to shield states from potential revenue losses during the GST transition for five years until June 2022. The duration was extended to March 31, 2026, to repay the ₹2.69 lakh crore debt the Centre incurred for states during the Covid crisis to cover the cess fund shortfall.Authorities are considering removing the 12% rate and reallocating these items to the 5% and 18% categories, the report said.The timing for restructuring is favorable as tax systems have stabilized and economic indicators are strong. With upcoming free trade agreements with developed countries, the government seeks to eliminate barriers that could hinder the growth of domestic industries.
