Will Goods Become Cheaper as GST Council Lowers Tax Rates for More Consumer Items?

New Delhi, Sep 3 (NationPress) The GST Council, during its current meeting, has shifted focus towards including consumer products like shoes and clothing priced up to Rs 2,500 within the lowest GST tax bracket of 5 percent, as per insider reports.

This change will expand the range of items benefiting from the lowest tax rate, as currently only products priced up to Rs 1,000 qualify for a 5 percent GST, while those above this limit are subjected to higher rates of 12 percent.

The GST Council, which consists of state Finance Ministers with Finance Minister Nirmala Sitharaman presiding, has also made strides towards finalizing a simplified GST structure featuring just two tax slabs: 5 and 18 percent. However, the government intends to maintain the elevated slab of 40 percent on sin goods like cigarettes, tobacco, sugary beverages, and luxury items preferred by affluent consumers.

By transitioning goods from the 12 and 28 percent brackets to the lower tax rates of 5 and 18 percent, the total count of tax slabs has been trimmed from four to two as part of this simplification effort. Consequently, the prices of consumer products are expected to decrease due to the reduced taxes, which should enhance demand and stimulate economic growth.

A four-tier GST structure (5, 12, 18, and 28 percent) was first established on July 1, 2017, when the Union government and states reached an agreement to consolidate most of their taxes, including excise duties and VAT, into a single uniform tax. A compensation cess ranging from 1 to 290 percent is imposed on luxury and demerit goods to create a revenue pool intended to compensate states for any revenue losses incurred from this overhaul.

However, this compensation mechanism was only in effect for the initial five years, concluding in June 2022.

Prime Minister Narendra Modi emphasized in his Independence Day address that the Central government is advocating for substantial reforms in GST, targeting three primary pillars: structural reforms, rate rationalization, and enhancing the ease of living.

The key areas earmarked for next-generation reforms include tax rate rationalization to favor all societal segments, particularly the common people, women, students, the middle class, and farmers.

The reforms aim to mitigate classification-related disputes, rectify inverted duty structures in certain sectors, ensure greater rate stability, and further improve the ease of doing business.

According to PM Modi, the GST reforms are poised to fortify essential economic sectors, encourage economic activity, and facilitate sectoral growth.