Now, for GST 3.0

The latest reforms promise relief, but some issues remain unresolved

- MONIKA YADAV

Excise duty, service tax, value-added tax (VAT), central sales tax, purchase tax, entertainment tax, octroi.... Before the goods and services tax (GST) came into force, on July 1, 2017, people grappled with a maze of taxes, complicated further by multiple rates across the Centre and states. All in all, there were 17 large taxes and 13 cesses.

The GST regime consolidated these into four main slabs: 5, 12, 18, and 28 per cent. It also eased business operations. Companies no longer needed to maintain warehouses in every state, and the removal of border checkposts brought down the time and cost of logistics. Problems, though, persisted, with commodities and services split into sections and subsections, which invited different rates.

This, too, has now been simplified. On August 15, Prime Minister Narendra Modi announced that the system would be overhauled and made friendlier. From four slabs, GST is now down to a two-tier rate structure — § and 18 per cent — along with a peak rate of 40 per cent for demerit goods and a few super-luxury cars. The 12 and 28 per cent slabs have been done away with altogether.

The aim is to make common-use items cheaper and resolve classification disputes. The GST Council has also addressed the issue of inverted duty structure in sectors like textiles, fertilisers, and leather goods.

The reforms, being called GST 2.0, will kick in on September 22.

Despite these changes, experts are of the view that a number of issues remain unresolved and need to be tackled in the next round of reforms to make GST more suitable for businesses.

Multiplicity of rates

One of the biggest unfinished tasks under GST 2.0 is the continued multiplicity of rates. In mature economies, the trend is towards simpler GST/VAT structures — either asingle uniform rate or a standard rate, with one or two reduced rates.