When GST = Good & Simple Tax

Union Finance Minister Nirmala Sitharaman has said a final decision on streamlining GST rates and rationalisation of tax slabs is "very close". Can these changes transform the indirect tax system?

- MONIKA YADAV & ASIT RANJAN MISHRA

Eighteen months after the Goods and Services Tax (GST) was implemented in July 2017, then finance minister Arun Jaitley outlined his vision in a blog post. He suggested consolidating the existing rates into three slabs: zero, 5 per cent, and a standard rate, with higher rates for luxury and sin goods.

"A future road map could well be to work towards a single standard rate instead of two standard rates of 12 per cent and 18 per cent... Obviously, this will take some reasonable time when the tax will rise significantly," Jaitley wrote.

Six years later, the Union government is close to presenting a proposal to the GST Council to reduce the number of slabs and rates on many items. This follows recommendations from a Group of Ministers (GoM) on rate rationalisation, chaired by Bihar Deputy Chief Minister and Finance Minister Samrat Choudhary.

Need for rationalisation

India's GST structure merged 17 state and central taxes but still has five tax slabs (plus cesses), creating classification disputes. Businesses often face confusion determining whether a product should be taxed at 12 or 18 per cent, leading to litigation. Most goods and services fall under the 18 per cent slab, considered high compared to global standards. This not only increases prices for consumers but potentially also encourages tax evasion.