New Delhi: Prime Minister Narendra Modi on Sunday said the Centre has circulated the draft of the next-generation GST reforms among states and sought their cooperation to implement the proposal before Diwali.
He said the reform in GST would benefit poor and middle-class people, as well as small and big businesses.
Addressing an event after the inauguration of two expressways, the Prime Minister said the Centre intends to make the GST law simpler and revise tax rates.
Modi had announced the proposal to reform the GST law in his Independence Day speech on August 15 from the ramparts of Red Fort.
“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.
Modi said the Centre has sent the draft proposal of the GST reform to the states.
“I hope that all states will cooperate in the initiatives of the central government,” he said, urging them to complete the process at the earliest so that the Diwali festival becomes more fabulous. The objective of this reform is to make GST simpler and revise rates, he added.
The present GST tax rates of nil/zero on essential food items, 5 per cent on daily use products, 12 per cent on standard goods, 18 per cent on electronics and services and 28 per cent on luxury and sin goods will be replaced by by a two tax slabs of 5 per cent and 18 per cent plus a special 40 per cent top bracket for 5-7 demerit goods.
The proposed two-slab regime, if approved by the GST Council, will replace the current four slabs in the GST regime, doing away with the 12 per cent and 28 per cent slabs.
The changes that have come about after nearly six months of deliberations and dozens of meetings have been conceived in a way to ensure that demand for tax tweaks does not arise, and also that input tax credit does not get accumulated in the system.
As many as 99 per cent of items in the 12 per cent category, such as butter, fruit juices and dry fruits, would move to a 5 per cent tax rate.
Similarly, electronic items like ACs, TVs, fridges, and washing machines, as well as other goods like cement, will be among the 90 per cent of the items that will move from 28 per cent to a lower 18 per cent slab.
The move comes after US President Donald Trump imposed a 25 per cent tariff on all goods India exports to the US, and planned doubling of the levy to 50 per cent from August 27 to punish New Delhi for its oil purchases from Russia.
The tariffs are likely to impact $40 billion of non-exempt Indian exports such as gems and jewellery, textiles and footwear.
The council is expected to meet next month to deliberate on the tax reform proposal.
About 20 per cent of items, including packaged food and beverages, apparel and hotel accommodation, are currently taxed at 12 per cent GST and account for 5-10 per cent of consumption and 5-6 per cent GST revenue.
Moving them to a lower 5 per cent slab may lead to loss of revenue, but the Central government is hopeful that a boost in consumption would be able to make up for the deficit in the next few months.
A special tax rate of 40 per cent - the maximum rate allowed under the GST law - would be charged for demerit and sin goods like tobacco, gutka, and pan masala, as well as online gaming, highly placed sources told reporters.