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Big GST changes ahead? Centre signals green light, says report

Big GST changes ahead? Centre signals green light, says report

India Today13 hours ago
India could soon see the biggest changes in its goods and services tax (GST) system since its launch eight years ago, reported The Economic Times.The Prime Minister's Office (PMO) has given an in-principle nod for a revamp of the GST structure, paving the way for possible reforms in the upcoming GST Council meeting scheduled for August.Officials told ET that the finance ministry has already started internal discussions and will soon reach out to states to build consensus for the proposed changes. These discussions are aimed at finalising a plan to simplify the GST structure and reduce complications for businesses and consumers.OVERHAUL PLANS UNDERWAYThe plan includes changes to tax slabs and efforts to make compliance easier. A group of ministers was previously tasked with rate rationalisation but has made limited progress. Now, the Centre is reportedly taking steps to push the reforms forward with political and administrative backing.A senior government official told ET that discussions have taken place at the highest levels, and a simplified GST regime could help the economy grow further. The official added that macroeconomic conditions are strong and stable, making this a good time to go ahead with the reforms.CHANGES IN SLAB STRUCTUREThe biggest proposed change is a reduction in the number of tax slabs. GST currently has five main tax rates — nil, 5%, 12%, 18%, and 28% — along with two special rates of 0.25% and 3% for items like precious metals.The 5% slab covers about 21% of goods, 12% slab covers 19%, and 18% slab includes nearly 44% of goods. Only 3% of items fall under the highest 28% slab.One option under serious consideration is the removal of the 12% slab. In this plan, items under 12% could be shifted to either 5% or 18%, depending on the nature of the product. This would make the GST system easier to understand and administer.WHY THE REFORMS MATTERThe GST revamp is also being seen as part of a wider push to prepare the economy for upcoming free trade agreements (FTAs) with developed countries. Policymakers believe that a smoother and less complicated tax system will help Indian businesses scale up and take better advantage of new trade opportunities.Industry leaders have been urging the government to fix several issues with the GST structure. They have flagged concerns about compliance, multiple tax rates, and confusion around input tax credit.Lawmakers across party lines have also spoken about the need to review GST rates and procedures to reduce the burden on small and medium businesses.COMPENSATION CESS AND FUTURE PLANSA compensation cess is currently charged on certain items like cigarettes, soft drinks, and large cars, which fall under the 28% slab. This cess was originally introduced to make up for the loss of revenue that states could face due to the GST rollout.The Centre had promised compensation to states for five years until June 2022. However, during the Covid period, the Centre had to borrow Rs 2.69 lakh crore on behalf of states due to a shortfall in the cess fund. To repay this, the cess was extended until March 31, 2026.A separate group of ministers is working on how to use the surplus in the compensation cess fund and what steps should be taken next.The final proposal for the GST overhaul is expected to be presented before the GST Council in August after the Parliament's monsoon session. The Council, which includes finance ministers from all states and the Union Finance Minister, is the top decision-making body on GST matters.- Ends
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