Ahead of Diwali, PM Modi promises “Next generation” reforms in GST regime. He remarked it as a “Diwali gift” for masses. These are GST related reforms that are going to be introduced. The burden on common people will be reduced by the implementation of two slab structure from four.
PM Modi on this Independence Day speech emphasised the importance of Goods and Services Tax. It was implemented in 2017. This tax has positively impacted the whole nation.
PM Modi stressed on the need for next generation reforms. He emphasized a review of the Current GST structure in his Independence Day speech. He remarked that new reforms aim to provide relief to ordinary citizens and farmers. They also aim to help the middle class and small and medium enterprises (MSMEs).
New Slab Rates Introduced
Ministry of finance has released details about the proposed GST reforms. They commented that a new two slab structure is being formulated. It will include standard and merit rates and special rates on selected items. It will replace the old GST slab structure of 5%,12%,18% and 28% slabs.
Currently, essential food items are exempt from GST. Daily use items are taxed at 5%. Standard goods are taxed at 12%. Electronics and services are taxed at 18%. Luxury and sin goods are taxed at 28%. However, the revised GST system will feature two tax slabs and a special 40% rate for luxury and sin goods. This special rate will apply to only seven items, including tobacco. However, the overall tax burden on tobacco will remain at 88%.
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To achieve the goal of “Atmanirbhar Bharat,” the Government is planning major GST reforms. They will introduce three pillars in the reform process.
- Structural reforms
- Rate rationalization
- Ease of living
The government has submitted its GST rate rationalization and reform proposals. The Group of Ministers (GoM), which was formed by the GST Council, will review them.
The reforms aim to reduce classification disputes. They also seek to correct inverted duty structures in certain sectors. Additionally, they ensure rate stability and improve the ease of doing business. These efforts are expected to strengthen key economic sectors, boost economic activity, and promote sectoral growth.
This will substantially reduce the taxes on items for the common man. Our MSMEs will benefit hugely. Daily-use items will become cheaper, which will also strengthen our economy,” the Prime Minister assured
Three Pillars of GST Reforms
The reforms are focused on three pillars. These are structural reforms, rate rationalisation, and ease of living. This aligns with the government’s push to make India “atmanirbhar”, or self-reliant. India is also aspiring to become the third largest economy in the world.
The first pillar – structural reforms – would include inverted duty structure correction in specific sectors. It would also resolve classification issues. Additionally, it would provide stability and predictability.
The second pillar – rate rationalisation – aims to reduce taxes on items used by the common man. It also seeks to lower taxes on aspirational goods. It would ensure a greater rate stability and reduce the tax slabs. Items like condensed milk, dried fruits, frozen vegetables, bicycles, and certain electronics cheaper for consumers.
The third pillar – ease of living – will simplify registration of startups. It will implement pre-filled returns. It will also ensure a faster refund process.
How Common People will Gain
Once classification issues are resolved, it would streamline the rate structures, help minimise disputes, and simplify the compliance processes. The rationalisation of tax rates would enhance affordability and boost consumption
The reforms also focus on furthering the ease of doing business in the country. It aims to simplify the registration processes for small businesses and startups. The system is expected to process refunds faster. It will automate refunds for exporters and those with an inverted duty structure.
The Centre has assured that it will make every effort to facilitate early implementation of the reforms. “The government reaffirms its commitment to evolving the GST into a simple, stable, and transparent tax system. It is a system that supports inclusive growth, and strengthens the formal economy. It enhances ease of doing business across the country,” the government said.
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