Rebooting GST

The 56th meeting of the Goods and Services Tax (GST) Council set out to recalibrate India's GST rate structure, lower the GST burden on the common man, and improve ease of doing business in India.

- DINESH KANABAR

The agenda of the meeting was the long-awaited rationalisation of rates, an exercise that has dominated the Council's deliberations for years but had been protracted for a variety of reasons including political.

This time the Council has demonstrated the will to tackle contentious reforms, perhaps even at a fiscal cost.

Collapsing a four-plus-slab structure into a simpler three-rate model (a 5% merit rate, an 18% standard rate for a majority of goods, and a steep 40% demerit rate for a handful of sin/luxury goods), the Council has recommended what the finance minister described as "GST 2.0".

A bulk of the rate changes will be effective from September 22, and this should lower rates and address inverted duty structures across sectors; yet several categories, particularly in services, have had rate increases signalling some trade-offs were embedded in the reform.

The rate reductions, which touch the daily lives of citizens, is expected to have far-reaching implications on consumer demand and economic activity.

The relief is significant for households, with many food items, medicines, and daily-use goods being exempted or shifted to the 5% slab.

More than 20 categories of goods have been dropped from 12% to 5%.

These changes, coupled with rate cuts on white goods, vehicles, and fertiliser inputs, should ease inflation and support consumer spending.

Some increases of both rate and value-based taxation are recommended for footwear and apparels.

The compensation cess, which was introduced to make up for revenue shortfalls in the states, will soon be phased out.