Has the Centre Proposed Two Tax Rates for All Goods to the GST Council?

New Delhi, Aug 15 (NationPress) The Finance Ministry has proposed to the GST Council the introduction of two distinct GST rates of 5 percent and 18 percent for all goods moving forward, as per sources from the government.

The 5 percent GST rate will apply to essentials such as agricultural products, health-related items, handicrafts, and insurance. In contrast, a 18 percent GST rate will encompass other goods, including manufactured items.

Nonetheless, items deemed as sin goods, including cigarettes, tobacco, sugary beverages, and pan masala, will remain under the existing higher GST tax category.

The government believes that this GST rationalization will significantly enhance consumption and stimulate economic growth.

The GST Council, consisting of state finance ministers, is anticipated to convene in September to evaluate and approve this proposal.

This suggestion follows Prime Minister Narendra Modi's statement during his Independence Day speech, where he indicated that major reforms in GST would be unveiled by Diwali, aiming to offer substantial tax relief to ordinary citizens and assist small enterprises.

Critical areas earmarked for these next-generation reforms involve the adjustment of tax rates to benefit all societal segments, particularly the common man, women, students, the middle class, and farmers.

Among the proposed changes is a reduction of taxes on items that are widely used and deemed aspirational. This initiative aims to improve affordability, boost consumption, and make essential and aspirational goods more accessible to a broader demographic.

The conclusion of the compensation cess has generated fiscal space, allowing greater flexibility to adjust and align tax rates within the GST framework for long-term sustainability, as stated by the ministry.

Moreover, addressing inverted duty structures aims to synchronize input and output tax rates, thereby minimizing the accumulation of input tax credit, which is essential for supporting domestic value addition.

Another pivotal proposal involves resolving classification disputes to streamline rate structures, reduce conflicts, simplify compliance processes, and ensure greater fairness and consistency across different sectors.

According to the ministry, "The objective is to establish long-term clarity on rates and policy direction to foster industry confidence and enhance better business planning."

In a bold declaration on Independence Day, PM Modi announced the establishment of a high-level task force dedicated to driving next-generation reforms in governance, taxation, and public service delivery.

"This Diwali, I am set to celebrate a double Diwali for you. Citizens will receive a significant gift, with a drastic reduction in GST on common household items," he revealed, hinting at sweeping transformations in the GST framework.

PM Modi underscored the urgency in reassessing GST rates, labeling it the "need of the hour."

"GST rates will see a drastic reduction. Tax will be lowered for the common people," he asserted.

This announcement coincides with the eighth anniversary of GST, which has emerged as one of India's most crucial tax reforms since independence. Since its introduction in 2017, GST has unified the nation's indirect tax system and greatly enhanced the ease of doing business, especially for small and medium enterprises.