Simpler GST 2.0: From 4 Slabs to 2

On Independence Day, the finance ministry proposed a two-tier GST structure, doing away with 12% and 28% tax slabs, and suggested a 40% slab for five to seven sin goods including tobacco and tobacco products.

The group of ministers on rate rationalisation, headed by Bihar’s deputy chief minister Samrat Chaudhary, may meet one more time ahead of the next GST Council meeting to discuss the issue.

Although, all states are looking forward to the next generation GST reforms. A few states are seeking either an equal share in the additional duty or the right to levy tax accordingly, as in the case of alcohol in the form of a additional separate state excise duty.

Over the last eight years since the introduction of GST, the focus has been on compliance and expanding the tax base. With average monthly GST collections of over RS1.8 lakh crore in FY25 and a tax base exceeding 1.5 crore, the time has come for ‘next generation GST reforms’, as announced by prime minister on Independence Day.

We are now set for GST rate rationalisation, with four main rate slabs of 5, 12, 18 and 28% likely to give way to two slabs of 5 and 18% (with a few ‘sin’ products subject to 40%).

This means that most items currently under the 12% slab could attract a lower rate of 5% (including many food and household products) and those under 28% might be reduced to 18% (including cement and cars).

This will significantly boost consumption and spur economic activity, without impacting government revenues too much, as over 70% of collections come from the 18% category. It would also reduce disputes on product classification and simplify the overall tax structure.

As the new rate structure takes shape, the GST Council should ensure it does not create an ‘inverted duty’ structure and, if it does, the laws are amended to allow refunds of accumulated credits.

Industry will also need to watch for any changes to the ‘anti-profiteering’ provisions, which were in force until March 31, 2025.

An exciting Diwali lies ahead for all of us!

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