The Goods and Services Tax (GST) structure in India is on the verge of a significant overhaul, potentially leading to price reductions on various essential items and services. The central government is considering a simplified GST regime with fewer tax slabs, aiming to ease the burden on the common person and boost consumption.

Proposed Changes to the GST Structure

The proposed rejig involves primarily reducing the number of tax slabs to two main rates: 5% and 18%. A special rate of 40% will be levied on luxury and sin goods. This new structure is expected to replace the existing multi-slab system, which includes rates of 0%, 5%, 12%, 18%, and 28%.

Under the revamped structure, a large percentage of items currently taxed at 12% are likely to be moved to the 5% bracket. Similarly, a significant portion of goods and services in the 28% slab is expected to shift to the 18% category.

Impact on Key Sectors

• Food Items: Essential food items may see reduced prices as the government considers moving items of daily consumption from the 12% slab to the 5% slab. Some reports suggest the possibility of eliminating the 12% slab altogether, which would further reduce the tax burden on everyday essentials. Small sachets of items supplied by FMCG companies may also be considered to be brought under the 5% tax bracket.
• Medicines: The GST Council has already taken steps to reduce the GST on certain cancer drugs from 12% to 5%. This move aims to make cancer treatment more affordable. Essential medicines and medical goods typically attract the lowest GST rates, while products like nicotine gum may be taxed at a higher rate.
• Mobile Phones: The GST rate on mobile phones is currently 18%. While imported phones may have become cheaper after the initial GST implementation, locally manufactured phones could become more expensive.
• Insurance: There is a strong possibility of a GST rate reduction on health and life insurance premiums. The GST Council is likely to consider reducing or even completely abolishing the 18% GST on these premiums. Some reports suggest a complete removal of GST on term life insurance and health policies for senior citizens, as well as policies with health coverage up to a certain limit.
• Other Items: The GST Council is also considering rate adjustments for other goods and services. For example, there have been discussions about reducing the GST on packaged drinking water, bicycles, and exercise notebooks, while increasing taxes on high-end wrist watches and shoes.

Expected Benefits and Concerns

The proposed GST rejig is expected to benefit several sectors, including textiles, fertilizer, renewable energy, automotive, handicrafts, agriculture, health, and insurance. Lower tax rates on mass consumption items could boost demand and consumption, particularly benefiting MSMEs. Experts believe that the reforms will make exports more competitive and stimulate domestic consumption.

However, some concerns exist regarding potential revenue losses due to the rate revisions. The government anticipates that increased consumption will offset these losses in the coming months.

Implementation Timeline

Prime Minister Narendra Modi has announced that the GST rate cuts will be rolled out by Diwali. There is a possibility of two GST Council meetings occurring in September to discuss these reforms.

Overall, the proposed GST rejig is a significant step towards simplifying the indirect tax regime and providing relief to the common man. While the specific details and implementation timeline are still evolving, the changes are expected to have a positive impact on various sectors of the Indian economy.