A proposal for comprehensive reforms in the Goods and Services Tax (GST) system is currently under review by groups of ministers (GoMs) representing the states. The reforms aim to simplify the tax structure by reducing the number of slabs and easing compliance for businesses.
The suggested framework introduces two primary tax rates—5% and 18%—with a higher 40% rate reserved for a few items considered luxury or harmful to society. At present, GST is levied in four main slabs of 5%, 12%, 18%, and 28%, with an additional cess on certain goods. Essential items are taxed minimally, while luxury and demerit goods fall in the highest bracket.
The GoMs are also evaluating the future of the compensation cess, changes in taxation of insurance premiums, and measures to address the issue of inverted duty structures in specific industries. Deliberations are expected to continue through the month, with the finalized recommendations likely to be placed before the GST Council in the next meeting.
If approved, the restructured GST regime could potentially lower the overall weighted average tax rate from earlier levels. However, experts caution that such reforms might result in a notable reduction in annual revenue collections.
The proposed reforms are anticipated to be rolled out in the near future, with the goal of creating a simpler, more transparent, and business-friendly taxation environment.