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New Delhi: In a significant move that could reshape India's Goods and Services Tax (GST) structure, the central government is reportedly considering reducing the number of tax slabs from the current four to just two – 5% and 18%. Sources indicate that these two rates might be retained, while the 12% and 28% slabs could be merged or eliminated.

This proposed simplification aims to streamline the GST system, making it easier for businesses to comply and potentially reducing disputes. The move comes after years of debate and discussions regarding the complexity of the multi-tiered GST framework.

Why the Change?

The GST, introduced in 2017, initially had five tax slabs: 0%, 5%, 12%, 18%, and 28%. Over time, the number of slabs was reduced to four. However, the system's complexity remains a point of concern for many businesses, especially small and medium-sized enterprises (SMEs).

A simpler GST structure is expected to reduce compliance costs, improve tax collection efficiency, and boost economic activity. It could also attract more foreign investment by creating a more predictable and transparent tax environment.

What Could Happen to Existing Rates?

According to sources, the 5% and 18% rates are likely to be retained. The 12% slab, which covers essential goods and services, might be merged into either the 5% or 18% bracket. The 28% slab, the highest tax rate applied to luxury goods and non-essential items, could also be merged or significantly reduced.

The government is likely to carefully analyze the impact of these changes on revenue collection and different sectors of the economy before finalizing the new GST structure. A gradual implementation approach is also expected to minimize disruption.

Impact on Consumers and Businesses

The potential changes to the GST structure could have a significant impact on both consumers and businesses:

• Consumers: Price adjustments are likely as businesses adjust to the new tax rates. Essential goods might become cheaper under a lower 5% rate, while luxury items could see price increases if the 28% rate is eliminated.
• Businesses: Simplification of the GST system will reduce compliance burdens and costs, especially for SMEs. It will also lead to better clarity and predictability in tax calculations.

Next Steps

The proposal is currently under discussion with state governments and other stakeholders. A consensus is needed to implement these changes, as GST is a combined central and state tax.

The government is expected to hold further consultations and may introduce the new GST structure in the coming months. Keep an eye on official announcements for the latest updates.

This potential overhaul of the GST system represents a significant step towards creating a more efficient and business-friendly tax environment in India. The simplification could unlock economic growth and benefit both consumers and businesses alike.