Context:
The Prime Minister has announced a major overhaul of the Goods and Services Tax (GST) to be rolled out by Diwali 2025. The reform aims to simplify the current tax structure, reduce the burden on consumers, and streamline compliance for businesses, particularly MSMEs.

What Is the GST Revamp?

A transformative restructuring of the existing multi-slab GST system into a simplified, two-rate structure, along with a special high rate for sin and luxury goods.

Objectives:

• Ease the tax burden on essential and standard goods
• Make everyday items cheaper to spur consumption
• Simplify compliance procedures for small businesses
• Boost economic growth by stimulating demand

Key Features of the Proposal:

• Two Main GST Rates:
  • 5% for merit goods and essentials
  • 18% for standard goods and services
• Special 40% Rate:
  • Applicable to 7 high-tax items, including:
    • Tobacco
    • Alcohol
    • Pan masala
    • Online betting platforms
• Slab Restructuring:
  • 99% of goods in the current 12% slab to move to 5%
  • ~90% of items from the 28% slab to shift to 18%
• Continued Exemptions:
  • Zero tax rate on essential food items retained
• Sector-Specific Exemptions:
  • Labour-intensive export sectors like diamonds to retain current tax rates
• Implementation Process:
  • Proposal under review by GST Council and Group of Ministers (GoM)
  • Final approval and rollout targeted before Diwali 2025

Significance:

• Consumer Relief:
  Prices of commonly used goods—soaps, toothpaste, garments, packaged foods, mobile phones—likely to fall
• MSME Empowerment:
  Lower tax rates and simpler rules will cut costs and enhance ease of doing business
• Economic Stimulus:
  Greater affordability can boost demand, contributing to faster economic recovery and growth

Source: Financial Express (FE)