The Union government is working on a significant restructuring of the Goods and Services Tax (GST) system, aiming to simplify the current multi-tiered rate structure into two main slabs — 5% and 18% — along with a special 40% rate for select luxury and sin goods, according to a PTI report citing official sources.
Key Changes Proposed
Under the plan, about 99% of goods currently taxed at 12% are expected to be moved into the 5% category. Around 90% of products in the existing 28% bracket would shift to the 18% slab. Essential and daily-use items would remain at the lower 5% rate.
The proposed 40% “special rate” would be levied only on seven items, including tobacco. While the GST rate on tobacco would be 40%, the overall tax incidence — factoring in cess — would stay at the current 88%.
High labour-intensive and export-oriented sectors like diamonds and precious stones would continue to be taxed at their current rates.
Current GST Composition
Since its launch on 1 July 2017, the GST framework has featured multiple rates:
- 18% slab: Contributes about 65% of GST collections
- 28% slab: Around 11% of collections
- 12% slab: About 5% of collections
- 5% slab: Roughly 7% of collections, covering essential goods
Expected Impact
Government officials believe the overhaul will boost consumption and, over time, offset revenue losses from rate rationalisation. The move is intended to simplify compliance for businesses and reduce the tax burden on consumers.
PM’s Independence Day Announcement
Prime Minister Narendra Modi, in his 79th Independence Day address, said the “next generation” of GST reforms will be rolled out by Diwali. He described the upcoming changes as measures that will provide “substantial” tax relief to the common man and support small and medium enterprises.
The announcement comes as the GST regime marks eight years in operation, with the Centre signalling that it is ready for a fresh phase of reform focused on simplification and growth.
