Centre Proposes Two-Rate GST Model to Replace Current Multi-Slab System

As per news reports, the Central Government is considering a major overhaul of the Goods and Services Tax (GST) structure with the goal of making it simpler and more efficient. A proposal has been sent to the Group of Ministers (GoM) that suggests introducing a two-slab system under GST. This reform is part of a broader plan designed to benefit various stakeholders such as consumers, businesses and exporters.

Introduction of a Two-Slab GST Structure

The proposal recommends replacing the current multi-rate framework with just 2 slabs — a merit rate and a standard rate. As per news reports, these slabs are being discussed at 5% and 18%. Special rates will be reserved only for select items. The objective is to streamline the structure and remove complexities that have evolved since GST was introduced in 2017.

Focus on Structural Reforms

One of the key elements of this reform focuses on correcting inverted duty structures. This will help to reduce the build-up of input tax credit. The government also aims to reduce classification disputes, which presently lead to extensive litigation between taxpayers and authorities. Overall, the structural reforms aim to provide long-term stability in the GST rate framework.

Rationalisation of GST Rates

A major pillar of the proposal is rate rationalisation. The reform envisions lowering tax rates on essential and aspirational goods while using the proposed 2-slab structure for most commodities. The end of the compensation cess period creates fiscal space that can be used to realign GST rates in a way that supports both revenue requirements and economic growth.

Read More: GST on Gold in India: Tax Rates and Rules! 

Ease of Living for Businesses and Citizens

The reforms include significant steps to improve ease of living and ease of doing business. Measures being considered include a completely seamless, technology-enabled GST registration process, pre-filled GST returns to reduce errors, and faster automated refunds, particularly for exporters and industries affected by input tax accumulation.

Conclusion

According to media reports and official commentary, the Centre plans to work with states to build consensus. The recommendations will only be implemented after being examined by the GST Council. If approved, the government aims to roll out the new 2-slab GST regime within the current financial year, possibly ahead of the Diwali festive season, as per reports.

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