GST Reforms: The Finance Ministry has proposed a major change in the GST structure and has presented a plan to implement a two-slab tax structure and special rates on select items. This proposal focuses on structural reform, rationalization of rates, and making life easier. This will be discussed in the GST Council meeting to be held in September. The ministry believes that this change will simplify the tax system, help in revenue balance, and reduce the tax burden for consumers and industries.

GST Reforms: The central government has proposed only two tax rates of five percent and 18 percent in the revised system of Goods and Services Tax (GST), which is expected to be implemented by Diwali. The Finance Ministry announced on Friday that it has sent a proposal for a new GST rate structure with two slabs to the Group of Finance Ministers (GOM) of the states. Under this proposal, GST will have two main slabs - 'standard' and 'qualification', while special rates will be applicable only on select items. Currently, a four-tier structure of GST of five, 12, 18 and 28% is in force.

Prime Minister Narendra Modi said in his address on the 79th Independence Day that the next generation GST reforms will be implemented by Diwali. He claims that this will reduce the tax burden and especially benefit small industries. Soon after the Prime Minister's announcement, the Finance Ministry issued a formal statement outlining the proposal.

What are the bases of the Finance Ministry's proposal

The Finance Ministry clarified that the Center's proposal shared with the GoM is based on three main points. These include structural reforms, rationalization of rates and making life easier. Under this, there is a suggestion of reduction in tax on goods needed by the common man and aspirational goods.

Next discussion in GST Council

The next meeting of the GST Council headed by Finance Minister Nirmala Sitharaman is expected to be held in September. In this meeting, the recommendations of the Group of Ministers will be discussed. This council has the power to take all policy decisions related to GST.

Status of the current GST structure

In the current four-tier GST structure, essential goods are either taxed at no tax or placed in lower slabs. The highest rate of 28% is applicable on perishable and luxury goods. Some products are also subject to compensation cess, which will expire by March 31, 2026.

Scope of special rates limited

Under the new proposal, special rates will apply only to select goods. The Finance Ministry believes that this will simplify the rate structure, stabilize revenue and reduce the tax burden for consumers.

Benefits of structural reforms

According to the Finance Ministry, the proposed structural reforms will help boost confidence in the industry, encourage better business planning and rationalize tax rates for long-term sustainability. The abolition of compensation cess has created fiscal space for the government to restructure the tax structure, which can be used for permanent reform.

Spirit of cooperative federalism

The Finance Ministry said that the Center is committed to working closely with the states in accordance with the spirit of cooperative federalism. An attempt will be made to build a broad consensus with the states in the coming weeks to implement the next generation tax reform.

Role and leadership of the GoM

The seven-member group of ministers formed for rationalization of GST rates is headed by Bihar Deputy Chief Minister Samrat Chaudhary. This group will collect the views of various states and make recommendations to the Council.

Expectations and challenges from the new rates

The new two-slab structure is expected to simplify the tax system, but there are some challenges with it. These include revenue balance between states, differences of opinion over the scope of special rates and adjustment of businesses in the transition period. Nevertheless, if the proposal gets widespread support, it can prove to be the biggest structural reform in the Indian tax system so far.

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