GST 2.0 good, but more reforms key to galvanise economy

The overhaul of the goods and services tax (GST) is a major reform that businesses and consumers have been waiting for. Ideally, there should have been a single GST rate, but then something is better than nothing. The GST Council has reduced the current four slabs - 5, 12, 18, and 28 per cent - to the two-rate structure of 5 per cent and 18 per cent. It has proposed a steep 40 per cent slab for a select few items such as high-end cars, demerit goods, and cigarettes.

Revenue Secretary Arvind Shrivastava said the move simplifies taxation, reduces the burden on essentials, and ensures fiscal sustainability. He clarified that the rationalisation, which is expected to have a revenue implication of Rs 48,000 crore, should not be termed as a revenue loss. Instead, he emphasised that lower taxes will put more disposable income in the hands of consumers, thereby boosting expenditure and fuelling economic activity. Compliance is also expected to improve under the new system. It is good to notice that revenue maximisation is not government policy.

Daily essentials and food items, household and personal care items, stationery, footwear and textiles, healthcare and insurance, and transport and travel will be cheaper for common people when new GST slabs come into force from September 22. One major rationalisation has been on cement, which now will be taxed at 18 per cent, and not 28 per cent as is the case currently. Services like salons, barbershops, gyms, and yoga centres will now face only 5 per cent GST without input tax credit, which is much lower than 18 per cent.

The restructuring of GST slabs marks one of the most significant reforms in the indirect tax regime since the introduction of GST. By simplifying the structure from four slabs to just two - 5 per cent and 18 per cent - along with a special 40 per cent slab for luxury and demerit goods, the government has attempted to strike a balance between affordability for the masses and revenue generation for the exchequer. The reduction in tax rates on essential commodities, household goods, healthcare, agriculture inputs, and transport services is expected to ease the cost burden on consumers and stimulate demand.

However, while the current rationalisation is a big leap forward, it must be seen as only a part of a longer journey. The ultimate goal of GST reform should be the establishment of a single, uniform rate applicable across most goods and services, with minimal exemptions. A unified rate will not only eliminate classification disputes and reduce compliance complexities but also enhance the transparency and predictability of the tax system.

Moreover, the government cannot afford to view GST reform in isolation. It must be complemented by broader and deeper structural reforms in areas such as labour, land, capital markets, and infrastructure. Simplified and predictable taxation should be part of a larger ecosystem that promotes entrepreneurship,

boosts investment, and creates sustainable employment opportunities. For a young country like India, where millions join the workforce every year, higher economic growth and faster job creation are non-negotiable priorities.

The latest rationalisation of GST slabs is thus best described as a significant milestone- but not the final destination. If followed up with continued efforts toward a truly unified GST, supported by wider economic reforms, this initiative could unlock stronger growth momentum and bring India closer to realising its potential as a globally competitive economy.