New Delhi: Marking his 12th Independence Day address, Prime Minister Narendra Modi promised a “double Diwali” for citizens this year, hinting at a major economic announcement.
“This Diwali, I am going to celebrate a double Diwali for you. The countrymen are going to get a big gift, there will be a drastic cut on GST on common household items,” he said, signalling sweeping changes in the Goods and Services Tax (GST) regime.
PM Modi emphasised the urgency of reviewing GST rates, calling it the “need of the hour”. He announced that the government is preparing a new-generation GST reform aimed at reducing the tax burden on common citizens.
“GST rates will be reduced drastically. Tax will be reduced for the common people,” he declared.
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Furthering PM Modi’s vision of build an ‘Atmanirbhar Bharat’, the Central Government is proposing significant reforms in GST. It will be focused on 3 pillars: 1. structural reforms; 2. rate rationalisation and; 3. ease of living.
GST Rate Rationalisation
The Finance Ministry has said that the Central Government has sent its proposal on GST rate rationalisation and reforms to the Group of Ministers (GoM) constituted by the GST Council to examine this issue.
Key areas identified for next-generation reforms include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers.
Reforms will also seek to reduce classification-related disputes, correcting inverted duty structures in specific sectors, ensuring greater rate stability, and further enhancing ease of doing business. These measures would strengthen key economic sectors, stimulate economic activity, and enable sectoral expansion.
Key Pillars of the Centre’s Proposed GST Reforms:
Pillar 1: Structural reforms:
1. Inverted duty structure correction: The correction of inverted duty structures to align input and output tax rates so that there is a reduction in the accumulation of input tax credit. This would support domestic value addition.
2. Resolving classification issues: Resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.
3. Stability and Predictability: Provide long-term clarity on rates and policy direction to build industry confidence and support better business planning.
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Pillar 2: Rate Rationalisation:
1. Reduction of taxes on common: man items and aspirational goods: This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population.
2. Reduction of slabs: Essentially move towards simple tax with 2 slabs – standard and merit. Special rates only for select few items.
3. Compensation Cess: The end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.
Pillar 3: Ease of Living:
1. Registration: seamless, technology-driven, and time-bound, especially for small businesses and startups.
2. Return: Implement pre-filled returns, thus reducing manual intervention and eliminating mismatches.
3. Refund: Faster and automated processing of refunds for exporters and those with inverted duty structure.
Finance Ministry has said that when GST Council meets next, it will deliberate on the recommendations of #GoM, and every effort will be made to facilitate early implementation so that the intended benefits are substantially realised within the current financial year.
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