New Delhi: In a strategic endeavour to streamline the national tax landscape, the Union government is preparing to condense India’s Goods and Services Tax (GST) slabs from four to two —potentially by Diwali this year — with the ultimate aim of a single tax rate by 2047.
On Thursday, the Centre took a big step towards it after the six-member Group of Ministers on GST rate rationalisation have the go ahead.
Described by the senior-most officials as Next Gen GST the initiative is expected to emerge as a game changer, reducing the degree of compliance by various enterprises and also providing relief to the consumers and nurturing the vision of One Nation, One Tax.
Right now, the GST system has four tax rates: 5%, 12%, 18%, and 28%, along with extra charges of 0.25% and 3% on precious metals. The proposed overhaul —gaining traction within the Prime Minister’s Office (PMO) and scheduled for deliberations during the GST Council meeting in August or September— seeks to dismantle the 12% slab altogether. Products that are currently under a tax of 12 percent, including items as basic as footwear, clothes, and mobile products as luxuries, would be inserted into either the 5 percent or the 18 percent scale, adding to the simplification of the taxation system.
A senior government officer was quoted by The Economic Times as saying, “The two-slab structure represents somewhat of a move towards clarity and efficiency.” We think of one GST rate, and by 2047, India could have the simplest tax system in the world. This goal seems to be in tandem with what former Finance Minister Arun Jaitley had suggested: that the existing 12 percent and 18 percent brackets should be merged into a single rate, which would probably be between 15 percent and 16 cent.
For consumers, eliminating the 12 percent slab would help lower prices if essential commodities are moved to the 5 per cent bracket, although some commodities may see slight price increases if they fall under the 18 per cent rate. Small businesses, especially micro, small, and medium-sized enterprises (MSMEs), would benefit greatly from easier rules, simpler filing processes, and fewer disagreements about taxes. The reform also suggests an option in the incorporation of petroleum, natural gas and insurance in GST, which may result in cutting down the input cost and seeing an increase in the affordability.
The GST Council —chaired by Finance Minister Nirmala Sitharaman— has been consulting industry stakeholders to resolve persisting ambiguities, such as inconsistent tax rates on food items (e.g., biscuits or pizza bases) and cumbersome documentation. Another aspect of the system grounded in modernisation appears in the form of the forthcoming E-Way Bill 2.0 with artificial-intelligence tracking and the tiered compliance provided to facilitate smaller enterprises.
Despite the positive outcomes, there are still obstacles to overcome. State governments fear the erosion of revenue should petroleum be incorporated into GST, and an increase in the lowest bracket of 5 percent to 8 percent might raise issues with household inflation. At the same time, the introduced Compensation Cess, which was initially scheduled to lapse in March 2026 to help the government to cover revenue losses beyond the sub-national level, is yet again an unsolved issue, with debates continuing on the post-2026 implementation of the cess.
As the GST nears its eighth anniversary, the upcoming Next Gen reforms could potentially mark a significant shift in India. Successful implementation is capable of bringing economic growth, less litigation, and even furthering the countrywide tax regime in 2047. As long as the GST Council takes its subsequent decisions, the focus will be on the policy’s ability to reform taxes on goods and services in India.
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