GST 2.0: A Bold Tax Overhaul

GST 2.0: A Bold Tax Overhaul

1. Simplifying Tax Slabs—From Four to Two (Plus a Special Rate)

• The Group of Ministers (GoM) has endorsed a plan to replace the existing four-slab GST framework (5%, 12%, 18%, 28%) with just two primary slabs—5% and 18%, while introducing a 40% levy specifically on sin and luxury goods.

• Importantly, this marks a dramatic rethinking of India’s indirect tax structure—the most significant since GST’s launch in 2017.

2. Sector-Wise Impacts of Slab Rationalisation

Per detailed analysis:

• Nearly all items currently taxed at 12% are proposed to shift to 5%—including everyday essentials like food, medicines, and educational supplies.

• About 90% of goods under the 28% slab are expected to fall under the 18% category—this includes consumer durables such as TVs, refrigerators, and ACs.Sin and luxury goods—tobacco, pan masala, online gaming, etc.—will attract a steeper 40% GST, acting as a deterrent.

• A helpful summary from Mint adds that existing carve-outs, like 0.25% on diamonds and 3% on precious metals, will remain. Compensation cess is expected to be phased out, possibly replaced by a health-specific cess on sin goods.

3. Timeline & Legislative Process

• These proposals were unveiled by the government around mid-August, notably during Prime Minister Modi’s Independence Day address, and are being referred to as “Next Gen GST.”

• The GoM has already cleared the blueprint; the final approval lies with the GST Council, expected to convene in September–October—ideally before the upcoming festive spree.

4. Revenue and State Concerns

• While central officials expect that lower rates might stimulate consumption—offsetting revenue loss in the longer term state governments remain cautious.

• For instance, Kerala anticipates a shortfall of ₹8,000–10,000 crore and reported a ₹21,955-crore revenue loss last year due to earlier compensation lapses.

• Similarly, Karnataka projects a ₹15,000-crore loss and seeks compensation from the Centre to bridge the fiscal gap.

5. Ensuring Transparency—Preventing Profiteering

• Several states have demanded strict enforcement measures to ensure businesses actually pass on GST reductions to consumers rather than pocket them as higher margins.

• This push underscores the need for policy safeguards that blend reform with fair implementation and consumer protection.

6. What’s at Stake—Who Gains and Who Eyes Caution?

Potential Winners

• Consumers and Households: Lower GST on essentials like food and daily-use items could meaningfully ease inflationary pressure.

• Durables & Automobiles: With GST on ACs, TVs, and entry-level vehicles dropping, the outlook is brighter for both buyers and manufacturers.

State Governments

• Facing potential revenue compression, states like Kerala and Karnataka urge caution and demand compensation for shortfalls.

Policy Advocates

• Tax simplification enthusiasts are optimistic: fewer slabs could streamline compliance, reduce disputes, and enhance transparency. However, critics question if even two slabs plus carve-outs truly meaning a simpler system.

Conclusion

India’s GST 2.0 represents a sweeping rationalisation of indirect taxation—shrinking rates into two main slabs, redistributing tax burdens, and aiming to stimulate consumption while simplifying complexity. Yet it also raises valid concerns around state revenues and fair benefit transfer. As the GST Council deliberates, the blueprint could become a landmark reform, balancing fiscal prudence with economic stimulus.