Clipped from: https://www.thehindubusinessline.com/opinion/editorial/gst-reforms-not-a-day-too-late/article69947678.ece
A reduction in levies of mass consumption goods as well as discretionary items is expected to boost consumption at a time when urban demand in particular is not looking upbeat
A clutter of rates was always considered to be against the spirit of the ‘good and simple’ tax | Photo Credit: SUSHIL KUMAR VERMA
In his Independence Day address, Prime Minister Narendra Modi unveiled a proposal that would amount to a sweeping reform of the GST system. The proposed reforms of GST rates would amount to making ‘essential and aspirational goods’ cheaper, removing anomalies such as inverted duties and resolving clutter with respect to classification. A clutter of rates was always considered to be against the spirit of the ‘good and simple’ tax, and hence the Prime Minister’s proposal, coming after the completion of eight years of GST, has not come a moment too late.
This proposal — details of which were reported in a section of the media — has been sent to the Group of Ministers on rate rationalisation, linked to the GST Council, set up in July 2024. This GoM has ministerial representatives from Bihar, Uttar Pradesh, Karnataka, Kerala and West Bengal. Finance Minister Nirmala Sitharaman is expected to address the GoM very soon in a bid to kickstart the process of consultation with States, even as a Diwali deadline looks rather ambitious. Before going into specifics of this proposal, it is important to appreciate what a rate rationalisation exercise at this juncture is expected to achieve. A reduction in levies of mass consumption goods as well as discretionary items is expected to boost consumption at a time when urban demand in particular is not looking upbeat, as the Reserve Bank of India has noted in recent times. Crucially, it could offset at least a part of the impact of the tariff shock on labour intensive exports, giving small and medium units a lifeline.
The move is an economic stimulus in a time of global uncertainty. In its essence, the proposal deals with doing away with the 28 per cent and 12 per cent slabs, expanding the 5 per cent and 18 per cent slabs, and creating a 40 per cent slab for demerit goods. Over 99 per cent of the goods in the 12 per cent bracket (processed foods, butter, apparel and mobile phones) will move to 5 per cent (footwear, apparel and some processed foods). And similarly, over 90 per cent of the items in the 28 per cent category (cars, ACs, refrigerators and premium motorbikes) will move to the 18 per cent category, which is the rate for all services, besides some consumer goods. So, we are left with an expanded 5 per cent slab for mass consumption goods (including those meant for exports); an 18 per cent one for ‘aspirational’ items and all services (a slab which will bring most of the revenue); and a 40 per cent slab for ‘demerit goods’.
There can be no convincing argument against this ‘demerit’ rate. It offsets the revenue foregone from the slab rejig; those who can afford premium products should be taxed. The Centre has a tough task in seeing these reforms through in time for the festival season, which is just about a month away; it is even less in Kerala with Onam just a fortnight away. With the process being a lengthy one, it can only be hoped that the GST Council can be convened early and will do its job with alacrity.
Published on August 18, 2025
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