How is the GST structure being simplified?
Why in News?
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GoM (Group of Ministers) chaired by Finance Minister Nirmala Sitharaman accepted Union government’s proposals on simplifying GST structure.
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GST Council to discuss reforms in September 2025.
Current GST Structure
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Presently 7 rates: 0.25%, 3%, 5%, 12%, 18%, 28% + Compensation Cess.
Proposed GST Structure
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4 slabs only:
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<1% → jewellery, diamonds, precious metals (merging 0.25% + 3%).
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5% → essential/common-use goods (food items, drugs, apparel <₹1,000, soaps, toothpaste, toiletries).
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18% → bulk of manufactured & semi-luxury items (non-luxury cars, ACs, fridges).
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40% → ‘sin goods’ (tobacco, cigarettes, online gaming, etc.).
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Why Simplification Needed?
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GST originally had multiple slabs causing complexity.
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Effective rate falling:
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2017 (notional): 14.4%
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2019: 11.6%
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Expected (post-reform, 2026-27): 9.5%.
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Goal:
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Ease compliance.
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Reduce burden on common consumers.
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Align GST closer to global best practices of fewer, broader slabs.
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Impact on Consumers
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Common household goods → cheaper (soap, toothpaste, toiletries down from 18% → 5%).
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Essential food items & life-saving drugs → remain at 5%.
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Durable consumer goods (ACs, fridges, non-luxury cars) → drop from 28%+cess → 18%.
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Only “sin” goods shifted to higher 40%.
Revenue Implications
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Estimated shortfall: ₹1.1 – 1.8 lakh crore.
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Centre bears 50%.
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States share balance.
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RBI dividend (₹2.69 lakh crore in 2024-25) cushions Centre.
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States’ concern: demand for compensation mechanism if losses occur.
Way Ahead
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GST Council to decide final structure (Sept 3–4, 2025).
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Balancing consumer welfare and fiscal stability is key.
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Possible measures:
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Enhanced compliance.
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Digital monitoring to reduce evasion.
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Alternate revenue sources (disinvestment, dividends).
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