The Prime Minister’s Office (PMO) has approved a significant overhaul of India’s Goods and Services Tax (GST) system, paving the way for major reforms to simplify the tax structure. The proposal is set to be discussed in the upcoming GST Council meeting in August. The finance ministry has already initiated discussions on the changes, which are expected to streamline the GST system and ease compliance for businesses and consumers alike.
One of the key changes under consideration is the reduction of the number of tax slabs in the current GST structure. Currently, there are five primary slabs: nil, 5%, 12%, 18%, and 28%, along with two special rates of 0.25% and 3% for items like precious metals. The 12% slab, which covers around 19% of goods, could be eliminated, with items under this category being moved to either the 5% or 18% slab depending on their nature. This would make the GST system easier to navigate and administer, benefiting both consumers and businesses by removing unnecessary complexities.
The timing of these reforms is seen as opportune, with macroeconomic conditions being stable. The overhaul is expected to provide a boost to the economy by making India’s GST system more business-friendly, preparing it for upcoming free trade agreements (FTAs) with developed nations. Industry leaders have long been advocating for these changes, highlighting issues like compliance complexities, multiple tax rates, and confusion surrounding input tax credits. By addressing these concerns, the government aims to make Indian businesses more competitive globally.
In addition to simplifying tax slabs, the reforms also focus on the GST compensation cess. This cess was introduced to compensate states for potential revenue losses following the GST rollout, but its extension has sparked discussions. The government has extended the cess period until March 31, 2026, due to a shortfall during the COVID-19 pandemic. A separate group of ministers is currently working on how to utilize the surplus in the compensation cess fund and determining the future course of action.
The final proposal for the GST reform is expected to be presented to the GST Council in August, following the conclusion of Parliament’s monsoon session. The GST Council, which includes finance ministers from all states and the Union Finance Minister, is the key body responsible for making decisions on GST matters. This major overhaul could mark the beginning of a new era for the GST system in India, with the aim of creating a simpler and more efficient tax regime that benefits businesses and consumers alike.
