The Goods and Services Tax (GST) Council has approved a series of new measures aimed at easing the compliance burden for businesses in India, with a focus on reducing the registration time for MSMEs (Micro, Small, and Medium Enterprises) and start-ups. Sources confirmed to that the new policy will reduce the MSME registration time from 30 days to just three days, streamlining the process significantly. In addition, a proposal for automated GST refunds for exporters has been cleared, marking a major step forward in improving efficiency.
The GST Council began its two-day meeting with a key focus on rationalizing the existing GST tax slabs, which is expected to be the biggest reform in this area in years. The current GST system includes four tax brackets—5%, 12%, 18%, and 28%—and the government is considering cutting these in half. The proposal suggests that 90% of goods currently in the 28% tax bracket will be moved to the 18% slab, while several items in the 12% category will be reduced to the 5% slab. This tax overhaul is anticipated to boost domestic consumption, despite a potential Rs 50,000 crore revenue loss for the government.
According to sources, several key sectors, including textiles, fertilizers, renewable energy, automotive, handicrafts, agriculture, health, and insurance, are set to benefit the most from these changes. Moreover, certain goods or services like life and health insurance premiums, which currently attract an 18% GST, may soon be exempt from the GST framework entirely.
However, 'luxury' items such as tobacco, high-end cars, and liquor will continue to attract the 'sin goods' label, with a new Health Cess or Green Energy Cess replacing the expiring Compensation Cess.
The government hopes that the rationalization will benefit the middle class, particularly through reductions in the prices of 'daily use items' and 'aspirational' goods. The plan is to incentivize manufacturers to lower prices, which should also boost production. For instance, goods moved from the 28% tax slab to the 18% slab could offer significant savings for price-sensitive consumers. This price reduction, though not likely to match the full extent of the rate cuts, is expected to stimulate demand, especially in labor-intensive sectors like automobiles and consumer electronics.
The anticipated increase in demand due to the tax reductions may offset the impact of the 50% tariffs on exports to the United States, recently announced by President Donald Trump, which could affect exports worth $48 billion. Government sources noted that the expected tariff challenges would be counterbalanced by increased local demand and production.
Despite the optimism, there is likely to be opposition from non-BJP ruled states, such as Tamil Nadu and West Bengal, who are concerned about the potential revenue loss, estimated to be around Rs 50,000 crore. These states may demand compensation to cover the shortfall. The GST Council will attempt to build consensus for the proposed rationalization, and if successful, these changes could pave the way for a more efficient and competitive GST system in India.
