GST 2.0: Towards simpler, citizen-centric indirect tax regime

The 56th meeting of the Goods and Services Tax (GST) Council rationalised the current four-tier tax rate structure into a citizen-friendly 'simple tax'—a two-rate structure with a standard rate of 18 per cent and a merit rate of 5 per cent, along with a special demerit rate of 40 per cent for a select few goods and services.

- SOUMYA KANTI GHOSH

The changes in GST rates for all goods and services, except tobacco products, will be implemented with effect from September 22, 2025.

The GST Council's efforts at rationalisation have steadily lowered the system's complexity while sustaining revenue buoyancy. The effective weighted average GST rate, initially 14.4 per cent in 2017, had fallen to 11.6 per cent by September 2019, largely through slab adjustments and base expansion. With the current restructuring, it is projected to decline further to around 9.5 per cent.

The most striking element is the abolition of the 28 per cent slab, with commodities either shifted down to the 12 per cent bracket or moved into a sharply ring-fenced 40 per cent category for sin goods. While this recalibration is expected to entail a revenue foregone of roughly ₹48,000 crore, the wider economic benefits—such as lower dead-weight losses, improved compliance incentives, and stronger consumption multipliers—are expected to offset the short-term fiscal cost. Thus, the issue of revenue foregone is a misnomer.

The past history of the GST rationalisation exercise in 2018 and 2019 shows similar results, with revenues initially dipping but adjusting to a significantly higher trend after a couple of months. Those critics predicting higher revenue losses may want to check past data.

Now, to those who argue why these GST reforms were not implemented on Day One: It is worth tracing the evolution of tax reforms in India, including the move to GST in 2017. Such historical evolution, with its various milestones, demonstrates that any changes in policy architecture—whether physical, institutional, or fiscal—require time to evolve, simplify, and stabilise.