GST Rate Reduction on the Horizon: Finance Minister Hints at Upcoming Cuts – Key Details

In a major policy move, Finance Minister Nirmala Sitharaman has signaled an upcoming reduction in GST rates, aligning with the government’s ongoing tax rationalization efforts. The restructuring of Goods and Services Tax (GST) slabs is in its final stages, and an official decision is expected soon.

Current GST Structure & Proposed Changes

At present, GST is divided into four tax slabs: 5%, 12%, 18%, and 28%, with additional cess levied on luxury and sin goods. However, the government is considering reducing the number of slabs to enhance ease of compliance and stimulate consumption.

Following recent income tax reductions, the government is now shifting focus to GST revisions. Speaking at The Economic Times Awards, Sitharaman highlighted that the rationalization process is nearing completion. She noted that the Revenue Neutral Rate (RNR) has dropped from 15.8% at GST’s inception in 2017 to 11.4% in 2023, with further reductions anticipated.

GST Council’s Role in Tax Revision

The GST Council, chaired by the Finance Minister, had set up a Group of Ministers (GoM) in September 2021 to study tax restructuring and propose necessary changes. Sitharaman acknowledged the GoM’s progress and stated that a final review is underway before presenting the recommendations to the Council. The government aims to finalize key aspects such as rate cuts, slab restructuring, and overall tax simplification in the upcoming Council meeting.

Why is a GST Rate Cut Being Considered?

The government faces growing pressure to boost demand and consumption, prompting the Council to explore rate reductions. One of the major proposed changes includes scrapping the 12% slab, with goods under this category potentially being moved to either the 5% or 18% bracket.

For years, businesses and economists have called for a streamlined GST structure, reducing the number of slabs from four to three. The objective is to simplify taxation, reduce compliance burdens, and enhance economic activity by making goods more affordable.

Expected Impact of GST Rationalization

If implemented, the revised GST structure could lead to lower prices on essential goods, increased consumer spending, and overall economic growth. The final decision is expected to be taken in the next GST Council meeting, which will provide clarity on the extent and scope of the proposed tax cuts.

Stay tuned for more updates on the upcoming GST reforms and their impact on businesses and consumers alike.