The Centre is set to overhaul massively the Goods and Services Tax (GST) regime, hoping to adopt a more simplified framework with two main tax slabs of 5% and 18%, and a special 40% slab for luxury and sin items, sources quoted by PTI have said.
Under the new changes, almost 99% of products which are now taxed at 12% will likely be shifted to the 5% slab, while approximately 90% of products falling in the current 28% slab will likely get shifted to the new 18% slab, the sources told PTI.
Everyday essentials and mass-use items are expected to come under the 5% rate in the new GST format. The special 40% tax will be levied on only seven items, such as tobacco, although the total tax incidence on tobacco will still be 88%, the sources further noted.
Now, the GST regime, which became operational from July 1, 2017, indicates that the 18% slab takes the maximum share—65%—of overall collections. The top 28% rate contributes 11% to revenue, the 12% slab roughly 5%, and the 5% tax on necessities approximately 7%.
Labour-intensive export-oriented industries like diamonds and gems will remain under their current tax rates, the sources informed PTI.
The government expects the GST redesign to fuel consumption substantially, mitigating any loss of revenue through the rationalisation of rates.
Prime Minister Narendra Modi had earlier said the next-gen GST reforms would be implemented by Diwali, issuing a promise of "substantial" tax relief to the common man as well as benefits to small and medium enterprises.
Speaking during the 79th Independence Day, PM Modi stated, "The time has come to make changes in GST since the indirect tax regime has reached 8 years."
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