GST Council Approves Major Rate Rationalisation: A Shift to a Two-Tier Structure
UPSC Relevance
Prelims: Indian Economy and Social Development (Fiscal Policy, Taxation - GST, GST Council, GST Slabs, Inverted Duty Structure).
Mains:
General Studies Paper 2: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure (Functioning of GST Council).
General Studies Paper 3 (Economy): Government Budgeting; Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Key Highlights from the News
The 56th GST Council meeting made a crucial decision to restructure the country's GST tax framework.
Instead of the existing four main slabs, there will be a two-rate system primarily with 5% and 18% rates.
The 12% and 28% slabs will mostly be eliminated.
A "special rate" of 40% will be introduced for luxury goods and sin goods.
Key Tax Reductions:
Tax on many common products (soap, toothpaste, bicycles) will be reduced from 12%/18% to 5%.
A significant decision is the reduction of tax on cement from 28% to 18%.
Tax on Indian breads (roti, chapati), paneer, insurance policies, and life-saving medicines has been reduced to 0%.
A decision was also made to address the problem of inverted duty structure in sectors like textiles and fertilizers.
Although these changes are expected to result in a short-term revenue loss of approximately ₹48,000 crores for the government, it is anticipated that this will be offset by increased consumption (buoyancy effect) and improved tax compliance.
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