Syllabus: GS3/Economy
Context
- Recently, the Prime Minister of India has unveiled a new vision for India’s Goods and Services Tax (GST) regime aimed at simplifying tax structures benefiting the poor, middle class, entrepreneurs, traders, and business owners.
Proposed Reforms in India’s Goods and Services Tax (GST) Regime
- Simplified Tax Structure & Rate Rationalization:
- Two Main Slabs: 5% (merit rate) and 18% (standard rate);
- 99% of items in the 12% slab to move to 5%;
- 90% of items in the 28% slab to shift to 18%;
- Special 40% Slab: For ‘sin goods’ like tobacco, pan masala, and online gaming;
- Two Main Slabs: 5% (merit rate) and 18% (standard rate);
- Structural and Process Reforms:
- Correction of inverted duty structures (especially in textiles and MSMEs);
- Resolution of classification disputes to reduce litigation;
- Pre-filled returns to ease compliance and reduce manual errors;
- Automated refunds for exporters and businesses with inverted duty structures;
- End of Compensation Cess:
- Compensation cess (previously levied on luxury/sin goods) to be phased out by November–December 2025;
- Fiscal space created will allow for smoother rate alignment.
Economic and Social Impact
- Simplification in GST regime is expected to:
- Reduce compliance burdens;
- Encourage consumption;
- Improve tax collection through better compliance.
- The reforms will be consumer-centric, with reduced taxes on essential goods and services consumed by the poor, middle class, and MSMEs.
- The proposed reforms are seen as a step toward fiscal sustainability, aligning with India’s long-term growth goals and inclusive development agenda.
- It is expected any short-term revenue dip to be offset by increased economic buoyancy and improved compliance.
Suggestions for Future Improvements
- Settle classification disputes to reduce litigation;
- Correct inverted duty structures, especially in textiles and MSMEs;
- Establish GST Appellate Tribunals for faster resolution of disputes;
- Enhance digital infrastructure for smoother filing and reconciliation;
- Ensure anti-profiteering compliance so tax cuts benefit consumers.
| About Goods and Services Tax (GST) – It was launched on July 1, 2017, designed to unify the country’s fragmented tax system, GST replaced multiple central and state levies with a single, destination-based tax regime. – It continues to evolve through reforms aimed at simplification, compliance, and inclusive growth. Background: One Nation, One Tax – Before GST, India’s indirect tax system was riddled with overlapping taxes such as Value Added Tax (VAT), Central Excise Duty, Service Tax, and Entry Tax etc. – GST merged these into a unified structure comprising Central GST (CGST), State GST (SGST), & Integrated GST for inter-state transactions (IGST). – Its objectives included: 1. Eliminating the cascading effect of taxes; 2. Creating a common national market; 3. Enhancing ease of doing business; 4. Increasing transparency and compliance. Suggested reading: 8 Years of Goods and Services Tax (GST) |
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