PMO nod clears path for biggest GST overhaul since 2017; rate rationalisation, compliance easing on cards: Report
New Delhi: India is preparing for its most significant overhaul of the Goods and Services Tax (GST) regime since its launch in 2017, with the Prime Minister’s Office (PMO) giving in-principle approval for a sweeping restructuring of the system, according to sources cited by The Economic Times.
The proposed revamp is expected to be discussed at the next GST Council meeting in August, after the monsoon session of Parliament ends.
The finance ministry has already begun reaching out to state governments to build political consensus for the reform, while inter-ministerial discussions with key departments are underway.
Officials familiar with the matter told ET that the reforms will primarily focus on two areas: rationalising the GST rate slabs and simplifying compliance mechanisms.
The aim is to ease the burden on consumers and businesses while improving the efficiency of the tax system.
A key proposal under consideration is the elimination of the 12 percent tax slab. Goods currently taxed at 12 percent may be shifted to either the 5 percent or 18 percent categories.
The existing structure consists of five principal slabs—0 percent, 5 percent, 12 percent, 18 percent, and 28 percent—along with special lower rates of 0.25 percent and 3 percent for bullion.
According to official data, 21 percent of GST-rated goods fall under the 5 percent slab, 19 percent under 12 percent, 44 percent under 18 percent, and only 3 percent under the highest 28 percent slab.
While a ministerial panel had earlier been tasked with reviewing the rate structure, progress has been limited.
Now, with strong macroeconomic fundamentals and trade deals with developed countries under discussion, the government believes the timing is right for meaningful reforms.
The proposed revamp will also consider the future of the compensation cess, which is currently levied on sin goods such as tobacco and luxury cars within the 28 percent bracket.
Initially introduced to help states offset GST-related revenue losses until 2022, the cess was extended until March 2026 to repay ₹2.69 lakh crore borrowed by the Centre during the pandemic.
A separate ministerial group is examining how any surplus from the cess should be utilised going forward.
This major review of the GST system coincides with the Centre’s plan to introduce a new income tax law, also expected to be tabled during the monsoon session, the report added.
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