The Indian government is proposing a significant overhaul of the Goods and Services Tax (GST) system, based on a three-pillar framework. This initiative, inspired by Prime Minister Narendra Modi’s call for reforms to benefit everyday citizens and support the “Atmanirbhar Bharat” (self-reliant India) goal, aims to make the tax system simpler, more stable, and more business-friendly.
The proposed reforms have been sent to the GST Council’s Group of Ministers (GoM) for review, with the goal of implementation within the current financial year.
Here are the three pillars of the planned GST reforms:
1. Structural Reforms
This pillar focuses on creating a more predictable tax environment. The government plans to fix inverted duty structures to stop the accumulation of input tax credit, which will boost domestic manufacturing. It also aims to settle classification disputes, making it easier for businesses to comply, and ensure rate stability to give businesses more certainty for long-term planning.
2. Rate Rationalization
This pillar is all about simplifying the tax rates. The government intends to lower taxes on essential goods, making them more affordable. The plan is to move away from the current multi-slab system and adopt a simpler two-slab GST structure—a standard rate and a merit rate—with special rates reserved for only a few select items. The government will use the fiscal space created by the end of the compensation cess to align rates for long-term sustainability.
3. Ease of Living
This pillar uses technology to improve the tax experience for businesses. The measures include a seamless, technology-driven process for GST registration, pre-filled tax returns to minimize errors and mismatches, and faster, automated refunds for exporters and businesses affected by inverted duty structures.
These reforms are expected to reduce disputes, improve the ease of doing business, and stimulate sectoral growth across the country.