Govt proposes 2-tier GST structure, drastic reforms on anvil

Prime Minister Narendra Modi on Friday declared that Goods and Services Tax (GST) rates will be revised downwards by Diwali, with the aim of lowering prices of commonly used products and reshaping the eight-year-old indirect tax system.

- OUR CORRESPONDENT

Speaking from the ramparts of the Red Fort on the occasion of the 79th Independence Day, the prime minister said, "This Diwali, I am going to make it a double Diwali for you." He added that the reform plan was prepared after consultations with states and is designed to significantly reduce the tax burden across the country.

"Tax on items of common man will be reduced substantially. Our MSMEs will benefit hugely. Daily use items will become cheaper, which will also strengthen our economy," Modi told the nation.

He described the changes as "next-generation GST reforms" and called them a gift to citizens.

Shortly after Modi's announcement, the Union Finance Ministry outlined the government's proposal to overhaul the GST system. The blueprint suggests replacing the existing four-rate GST structure-5, 12, 18 and 28 per cent―with two principal slabs of 5 per cent and 18 per cent. A special 40 per cent rate would be applied only to a small group of goods, mainly luxury and sin items such as tobacco.

Under the plan, almost all goods currently taxed at 12 per cent would move to the 5 per cent category, while most items in the 28 per cent slab would shift to 18 per cent.

Officials indicated that this change could result in nearly 99 per cent of products in the 12 per cent category being reassigned to the lower bracket, and about 90 per cent of items in the highest bracket moving to 18 per cent.