Goods to turn cheaper as GST Council brings more consumer items under lower tax rates

New Delhi, Sep 3 (IANS) The GST Council, in its ongoing meeting here, has veered around to bringing consumer goods such as shoes and clothes in the lower price range of up to Rs 2,500 under the lowest GST tax bracket of 5 per cent, according to sources.

This would bring more items into the lowest tax bracket, as currently only goods priced up to Rs 1,000 attract a GST of 5 per cent, while those costing more are taxed at a higher 12 per cent.

The GST Council, comprising state Finance Ministers with Finance Minister Nirmala Sitharaman as the Chairperson, which met here on Wednesday, has also decided to finalise the rollout of a simplified GST regime with only two tax slabs of 5 and 18 per cent. However, the government has decided to keep the higher slab of 40 per cent on sin goods such as cigarettes, tobacco, sugary drinks and luxury goods that are bought by the high-income groups.

With goods from the 12 and 28 per cent brackets being brought under the lower tax rates of 5 and 18 per cent, the total number of tax slabs has been reduced to two from four earlier as part of the simplified system. The prices of consumer goods will come down due to the lower taxes, leading to an increase in demand and spurring growth in the economy.

A 4-tier GST structure of 5, 12, 18 and 28 per cent was implemented from July 1, 2017, when the Union government and states agreed to subsume most of their taxes, like excise duty and VAT, into one uniform tax. A compensation cess in the range of 1 to 290 per cent is levied on luxury and demerit goods to create a revenue pool for compensating states for the loss of revenue occurring from the exercise.

However, the compensation mechanism was for the initial 5 years ending June 2022.

Prime Minister Narendra Modi had stated in his Independence Day speech that the Central government is proposing significant reforms in GST, focused on 3 pillars of structural reforms, rate rationalisation, and ease of living.

The key areas identified for next-generation reforms include rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers.

The reforms will also seek to reduce classification-related disputes, correct the inverted duty structures in specific sectors, ensure greater rate stability, and further enhance ease of doing business.

GST reforms would strengthen key economic sectors, stimulate economic activity, and enable sectoral expansion, PM Modi said.

--IANS

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