The Centre has put forward a sweeping reform of the Goods and Services Tax (GST) regime, recommending a simplified two-slab structure of 5% and 18%, while levying a steep 40% GST on sin goods such as tobacco and pan masala. According to officials, the proposal has been sent to the GST Council, which will meet for two days in September to finalise the changes.
Prime Minister Narendra Modi, in his Independence Day speech, described the upcoming reform as a “Diwali gift” to the nation. “Over the past eight years, we implemented a major GST reform and simplified taxes. Now, the time has come for a review. We have consulted with states and are ready to bring the next-generation GST reform,” he announced from the Red Fort.
As per sources, the rationalisation plan includes lower tax rates for agricultural goods, health-related products, handicrafts, and insurance. The government believes these changes will ease costs for individuals, aid MSMEs, spur consumption, and ultimately stimulate economic growth.
Currently, GST is divided into five slabs — 0%, 5%, 12%, 18%, and 28%. The new plan aims to abolish the 12% category and redistribute items into the 5% and 18% brackets. Essential services such as health and life insurance are expected to become cheaper under the revised structure.
Although the Centre admits that reduced rates may affect revenue in the short term, it anticipates higher sales and improved compliance will balance the losses over time. The final decision on the new GST framework will be taken at the September Council meeting, with rollout expected before Diwali.