Simplified Two-Tier GST System Proposed
The Centre has proposed a simplified Goods and Services Tax (GST) system with two main slabs – standard and merit. This reform aims to replace the existing four slabs of 5%, 12%, 18%, and 28%. The proposal was sent to the Group of Ministers (GoM) for review. The move is part of next-generation GST reforms promised by the Prime Minister to be revealed by Diwali 2025. These reforms are expected to provide tax relief to the common man and support small and medium enterprises.
Overview of Proposed GST Changes
The new GST system will have two broad slabs. The standard slab will cover most goods and services. The merit slab will apply to essential and socially important items. Special rates will be maintained only for a few select goods. This simplification aims to reduce confusion and disputes related to tax classifications. It will also address inverted duty structures where input tax is higher than output tax, encouraging domestic production.
Focus on Affordability and Inclusivity
The reforms target affordability for common citizens including women, students, farmers, and the middle class. By lowering tax rates on essential and aspirational goods, the government hopes to boost consumption and make products more accessible. This will help stimulate economic activity and support sectoral expansion across the country.
Correction of Inverted Duty Structures
Inverted duty structures cause businesses to accumulate input tax credits that cannot be offset. The proposed reforms aim to align input and output tax rates to prevent this issue. This will reduce financial stress on manufacturers and promote value addition within the domestic economy.
Tax Rate Stability and Predictability
The government plans to provide long-term clarity on GST rates and policies. This will build confidence among businesses and help them plan better. Stable tax rates will also reduce frequent litigation and disputes over classification and rates.
Technology-Driven Compliance and Ease of Doing Business
The reforms include seamless, technology-enabled registration processes, especially for small businesses and startups. Pre-filled GST returns will reduce manual errors and mismatches. Refunds will be processed faster and automatically, particularly for exporters and those affected by inverted duty structures.
Fiscal Impact and Economic Growth
The end of the compensation cess has created fiscal space for the government to rationalise GST rates. In 2024-25, GST collections reached a record Rs 22.08 lakh crore, growing 9.4% year-on-year. This reflects a formalising economy and improved tax compliance. Simplifying GST is expected to further strengthen revenue while supporting economic growth.
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