PM Modi Proposes Major GST Reforms Ahead of Diwali Celebrations

Introduction to GST Reforms

On August 17, Prime Minister Narendra Modi announced that the government has shared a draft for significant reforms to the Goods and Services Tax (GST) with the states, urging their collaboration to implement these changes before the Diwali festival.

Benefits of the Proposed Reforms

Modi emphasized that these GST reforms are designed to assist both the economically disadvantaged and the middle class, as well as businesses of all sizes.

During an event marking the inauguration of two expressways in Delhi, he stated that the government aims to simplify the GST framework and adjust tax rates.

Vision for Good Governance

"For us, reform signifies the advancement of good governance, which is why we place a strong emphasis on continuous improvement. In the near future, we are set to implement reforms aimed at making life and business operations smoother and more convenient. As part of this vision, next-generation reforms will be introduced under the GST framework. This Diwali, these GST reforms will bring a double bonus to the people, enhancing their celebrations," he said.

Call for State Cooperation

The Prime Minister expressed hope that all states would support the central government's initiatives, urging them to expedite the process to ensure a more festive Diwali.

He reiterated that the goal of these reforms is to simplify the GST and adjust tax rates.

Details of the Proposed Tax Structure

Currently, the GST tax rates include nil/zero on essential food items, 5% on daily necessities, 12% on standard goods, 18% on electronics and services, and 28% on luxury items. The proposed changes suggest a shift to two tax slabs of 5% and 18%, with an additional 40% rate for 5-7 demerit goods.

If approved by the GST Council, this new two-slab system would eliminate the existing 12% and 28% categories.

Notably, 99% of items currently taxed at 12%, such as butter and dry fruits, would transition to a 5% rate. Additionally, many electronic goods and construction materials would see a reduction from 28% to 18%.

Context of the Reforms

This initiative follows the imposition of a 25% tariff by the US on Indian exports, which is set to increase to 50% from August 27, targeting India's oil purchases from Russia. These tariffs could affect approximately USD 40 billion worth of Indian exports, including gems, textiles, and footwear.

Modi first revealed the intention to reform the GST during his Independence Day address on August 15.