On Independence Day, Prime Minister Narendra Modi made a significant announcement regarding GST. He revealed that around Diwali, substantial reforms would be introduced to reduce taxes. Amidst this announcement, the Ministry of Finance has placed a proposal before the GST Council to bring structural reform, reduce tax rates, and simplify GST.
Celebrating the 79th Independence Day, Modi highlighted GST as a major reform that has transformed India’s economy since its inception in 2017. A proposal for the next-generation GST is currently under review by a group of ministers (GoM), aiming for implementation by Diwali this fiscal year. Let's discover the anticipated changes.
First Change - Structural Reform
The central government seeks to close the gap between input and output tax rates to reduce tax credits and promote domestic manufacturing. Classification issues are also planned to be streamlined to reduce current disputes and regulatory issues. The long-term goal is to make rates stable and policy-driven.
Second Change - Only Two Slabs
The new GST reform proposes having only two slabs. Currently, there are 0%, 5%, 12%, 18%, and 28% slabs, which will be reduced to just two ‘standard and merit-based’ slabs. Special rates will only apply to select items. The proposal includes a tax cut on essential and ambitious goods to boost consumption. Lower taxes will make various goods available at cheaper rates, benefiting the middle class, students, and farmers significantly.
Third Change - Benefits for Small Businesses
The third change focuses on simplifying processes for small businesses and digital transformation. This includes creating seamless technology, issuing quick refunds on pre-filed GST returns to minimize errors and human intervention.
Potential Additional Reforms
The next GST Council meeting is expected in September, where it is speculated that the 12% slab could be eliminated, and rates could be removed from health and life insurance. Moreover, rates for essential commodities could be rationalized to make them more affordable for the general public.
The Ministry of Finance stated its commitment to working in coordination with the states. The GST Council will deliberate on the GoM's recommendations in the upcoming session, emphasizing swift implementation.
Timeline:
India introduces tax reforms.
GST launched transforming economy.
2023
Reforms to streamline GST expected by Diwali.
