Next-Gen GST reform: A boon for the Indian economy

The basic tax multiplier effect tells the percentage increase in people's income when there is a percentage reduction in taxes. Reducing indirect taxes will increase income levels with high savings and enhance the purchasing power of consumers. Finally, it will improve commodity demand (Demand Side Effect)

- DR KARNATI KIRAN KUMAR

The Government of India has taken the 'Next-Gen GST reform' under the able leadership of Prime Minister Narendra Modi, which is a path-breaking decision to condense the goods and services tax slabs and reduce and eliminate the tax rates on various products.

To establish a uniform tax system and avoid the cascading effect of tax-on-tax, the Indian government began implementing GST from 1st July 2017.

The GST Council introduced various tax slabs of 28%, 18%, 12%, and 5%, along with a compensation cess.

The primary objectives were to promote transparency, increase state revenue, and stimulate economic growth.

By introducing GST, it formalized and streamlined the tax revenue collection without having tussles.

People of the country followed the government's decision.

They bore taxes even though it was burdensome since its implementation, where they thought marginal social benefits could replace the marginal income sacrifice.

In various forms, some sections have benefited, and some sections of society dissent on the government tax system, especially those paying income tax.

Income taxpayers had to pay the tax on their income and bear various forms of GST while purchasing Goods and services.

Ultimately, this led to a reduction in demand for consumer durables.

The government aims to achieve the Viksit Bharat @2047, and for that, it started fiscal reforms.

Firstly, brought the Direct tax reforms with the new Income Tax Act 2025, and recently withdrew it to further strengthen, as per parliamentary committee recommendations.

A path-breaking Indirect Tax reform was announced on 2nd September in the name of Next-Gen GST reforms, which brought commodities and services by condensing tax slabs from 4 to 2 (18% and 5%).

The observed fact is that the previous GST slabs became bottlenecks for strengthening MSMEs and producers of consumer durables.