India’s ‘Next Gen GST’ may pave way for single tax slab System: Report
The proposed 'Next Gen GST' aims to streamline India's tax system by reducing four tax slabs to two, benefiting everyday items with lower rates.
Senior government officials have described the proposed GST tax reforms as ‘Next Gen GST’, a significant overhaul that could eventually pave the way for a single sales/services tax rate by 2047.
The proposal, if approved by the GST council, aims to replace the current four-slab structure in the goods and services tax (GST) regime with a two-slab regime, featuring rates of 5 per cent and 18 per cent, while also retaining a 40 per cent tax on “sin goods.”
This new system would eliminate the 12 per cent and 28 per cent tax brackets, PTI reported.
Key features and rationale
The primary goal of this reform is to boost the economy and also serve to mitigate tariff threats.
Calling it the "next Gen GST’, one government official said "it is a game changer reform. In the pantheon of economic reforms seen in India, it's right up there." said officials who spoke to PTI.
They also said the new structure would mean that almost all of the common use items will move to the lower tax bracket, leading to price cuts, which in turn would boost consumption.
The changes are a result of nearly six months of extensive deliberations and meetings, with an aim of creating a stable tax environment and preventing the accumulation of input tax credit (ITC).
The new structure is designed to cater to the needs of the middle class, poor, farmers, and MSMEs in mind. Daily use items, such as packaged food, beverages and apparel would be moved to the lower 5 per cent from 12 per cent bracket to boost consumption of these products.
"Once the system is put in place and India becomes a developed nation, we can think about a single rate GST," said the official, adding that a single rate structure is suitable for developed countries where income and spending capacities are uniform.
"We have looked at every item, item by item and in some cases we have gone back and forth 3-4 times. Whether it is pesticide for use by farmers or pencils for students or some raw material or intermediaries for MSMEs, every item has been discussed threadbare and categorized in the merit or standard slab,” the official said.
Impact on tax slabs and revenue
According to the proposal, a significant number of items would be re-categorized:
- 12 to 5 per cent: As many as 99 per cent of the items in the 12 per cent category such as butter, fruit juices and dry fruits would move to 5 per cent tax rate.
- 28 to 18 per cent: About 90 per cent of the items currently taxed at 28 per cent, including electronic items like ACs, TVs, fridges, and washing machines as well as other goods like cement will be moved to the 18 per cent slab.
The Council is expected to meet next month to deliberate on the tax reform proposal. The move comes after US President Donald Trump imposed an additional 25 per cent tariff on all goods India exports to the US, bringing the total to 50 per cent from August 27 to punish New Delhi for its crude oil purchases from Russia. The tariffs are likely to impact $40-billion of non-exempt Indian exports such as that of gems and jewelry, textiles and footwear.
Prime Minister Narendra Modi in his Independence Day address to the nation on Friday emphasized that India should become self-reliant and consume what is made in India, PTI reported.