Proposed Overhaul of the GST Structure
The Centre is considering a significant restructuring of the Goods and Services Tax (GST) framework, aiming for a more simplified regime.
Key Features of the New GST Structure
- Introduction of two main tax slabs:
- 5% slab for most items
- 18% slab for a majority of taxable goods
- A special 40% rate for luxury and sin goods, affecting seven items, including tobacco, though overall tax incidence on tobacco remains at 88%.
Changes and Impact
- About 99% of items currently taxed at 12% could be moved to the 5% bracket.
- Around 90% of goods in the 28% slab are expected to shift to the 18% category.
- Common and daily-use items are likely to be taxed at 5%.
Current GST Structure Insights
- The current 18% slab contributes 65% of total GST collections.
- The 28% slab accounts for 11% of GST revenue.
- The 12% slab contributes about 5%, while the 5% rate on essential items contributes around 7%.
Sectoral Implications
- Sectors like diamonds and precious stones will continue to be taxed at existing rates due to their labour-intensive and export-oriented nature.
Expected Outcomes and Government Statements
- The GST revamp is expected to significantly boost consumption, potentially offsetting revenue losses from rate changes.