Next-generation GST reforms by Diwali, tax burden to come down for MSMEs, PM Modi says

Indian Express

21 hours ago

The government is set to target the next big phase of reforms under the Goods and Services Tax (GST) regime by Diwali, Prime Minister Narendra Modi said in his Independence Day speech on Friday. Tax burden for smaller businesses and common people is going to be reduced as the government looks at reducing rates on daily-use items and removal of the 12 per cent slab.
'This Diwali, I am going to make it a double Diwali for you…we have undertaken a big reform of GST over the last eight years. We reduced the burden of tax across the country…eight years later, time demands that we review it. We started the review through the formation of a high-powered committee, held discussions with states,' Modi said. 'We are coming with next generation GST reforms by this Diwali,' he said, adding that tax burden will be reduced significantly, and MSMEs will benefit greatly.
Sources said multiple meetings of the GST Council, the overarching federal body with members from both the Centre as well as states, will be held in the run-up to Diwali since decisions involving rate reductions that could potentially result in revenue losses will need to be discussed threadbare. The last meeting was held in December 2024.
The government is looking at reducing the multiplicity of rates as well as public welfare services such as health and life insurance. The proposal to do away with the 12 per cent slab would involve shifting some items to the lower 5 per cent slab, and some others to the higher 18 per cent slab. Though this would simplify the multiple rate structure, it is estimated to result in significant revenue losses of Rs 70,000-80,000 crore for the Centre and states combined, The Indian Express had reported last month.
In its last meeting held in Jaisalmer in December 2024, the GST Council had held discussions on lowering rates on several items. However, it decided to defer a key decision to lower the tax rate on health and life insurance premiums.
The potential revenue losses from the major tweaks in GST rates are likely to be met by resistance from states as it may strain their fiscal health. This rate rationalisation proposal has been unpalatable to many states, both BJP-ruled and Opposition, as several attempts to simplify or reduce rates on consumer-focused items were stalled earlier in the GST Council.
To build consensus and resolve contentious outstanding issues, Union Home Minister Amit Shah is learnt to have initiated discussions with all stakeholders — states as well as Central ministries, The Indian Express had reported last month.
GST, the biggest indirect tax reform in recent years, was introduced in July 2017. But it is riddled with a multiplicity of rates — zero, 5 per cent, 12 per cent, 18 per cent and 28 per cent, in addition to the cess rates for luxury and sin goods, and special carve outs for precious metals.
The GST rate rationalisation has been talked about for over four years now. In its 45th meeting held in September 2021 in Lucknow, the GST Council discussed the need to undertake rate rationalisation including correction of inverted duty structure, to reduce classification related disputes, and enhance GST revenues. The Council then approved changes in GST rates to correct inverted duty structure in many sectors, including textiles and footwear that were brought into effect from January 2022.