New Delhi: The central government is set to overhaul the Goods and Services Tax (GST) structure, replacing the current multi-slab system with just two main rates — 5% and 18% — by Diwali this year, according to highly placed sources.
At present, GST rates are spread across multiple slabs: nil on essential food items, 5% on daily-use goods, 12% on standard goods, 18% on electronics and services, and 28% on luxury and sin goods. Under the proposed revamp, there will be only two primary slabs, along with a special 40% rate for luxury and sin goods.
Once approved by the GST Council, 99% of items currently in the 12% category will shift to the 5% bracket. Likewise, around 90% of products and services taxed at 28% will move to 18%. The highest 40% rate will apply to just seven items, including tobacco, with the overall tax incidence on tobacco remaining at the existing 88%.
Officials expect the simplified GST regime to stimulate consumption, potentially offsetting any short-term revenue loss from the lower rates.
Since its rollout on July 1, 2017, GST collections have been led by the 18% slab, contributing 65% of total revenue. The 28% slab accounts for 11%, the 12% slab for 5%, and the 5% slab for 7%. Labour-intensive and export-driven sectors like diamonds and precious stones will retain their current tax rates.
