'Next Gen' GST Reform to feature two slabs, 40& select levy

The central government is set to overhaul the Goods and Services Tax (GST) regime by Diwali this year, introducing a simplified two-rate structure of 5% and 18% along with a special 40% tax on select luxury and sin goods, highly placed sources said. Currently, GST rates are spread across multiple slabs — nil or zero per cent on essential food items, 5% on daily-use goods, 12% on standard products, 18% on electronics and services, and 28% on luxury and sin goods. Under the proposed framework, the 12% slab will be eliminated, with 99% of items in that bracket moving to the 5% category. Likewise, nearly 90% of goods and services taxed at 28% will shift to the 18% rate.

The special 40% rate will apply to only seven items, including tobacco, with the total tax incidence on tobacco products remaining at the current 88% through additional cesses and levies. Officials expect the revamped GST to stimulate consumption, helping offset any potential revenue shortfall from the rate cuts. “The reform is designed to simplify compliance, boost demand, and create a more predictable tax environment,” a senior official noted.

Since its rollout on July 1, 2017, the current GST system has seen the highest revenue — about 65% — coming from the 18% slab. The 28% top bracket has contributed around 11% of collections, while the 12% slab has accounted for just 5% and the 5% rate for 7% of total GST revenues. Labour-intensive and export-driven sectors such as diamonds and precious stones will continue to be taxed at their current rates, sources clarified.The proposal will be placed before the GST Council for approval, marking what officials are calling the “next generation” of India’s indirect tax reform, according to information.

(Business Correspondet)