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Special 40% slab for tobacco and luxury goods; the majority of items to move to the lower bracket
New Delhi: The Union Government is set to overhaul the Goods and Services Tax (GST) regime by introducing a two-rate structure of 5% and 18%, in place of the current multi-slab system, highly placed sources said. The revamped system is expected to be rolled out by Diwali this year, pending approval from the GST Council.
At present, GST is levied at zero, 5%, 12%, 18% and 28%, depending on the category of goods and services. Under the new system, most goods and services would fall under just two slabs, with a special 40% rate reserved exclusively for luxury and sin goods such as tobacco.
Major Reshuffle of Tax Brackets
According to sources,99% of items in the existing 12% slab will shift to the 5% bracket. Around 90% of goods currently taxed at 28% will move to the 18% slab. The 40% special rate will apply to only seven categories of luxury and sin goods, including tobacco. In the tobacco case, the overall tax incidence will remain at the current 88%.
Boost to Consumption
Officials said the rationalisation is expected to spur consumption, which could help offset any immediate revenue loss from the lower tax rates. “The focus is on simplifying the tax structure, easing the burden on consumers, and giving a boost to MSMEs and domestic demand,” a senior official said.
Current GST Revenue Profile
Since its launch on July 1, 2017, GST has become India’s most significant source of indirect tax revenue. Data shows that thathe 18% slab accounts for nearly 65% of total GST collections. The 28% slab contributes about 11%. The 12% slab accounts for just 5%. The 5% rate on essential items generates approximately 7%. Labour-intensive and export-oriented sectors such as diamonds and precious stones will continue under their existing tax treatment, sources clarified. The revamped GST structure will be formally placed before the GST Council for approval. If cleared, the two-rate system will mark the most significant reform of GST since its rollout eight years ago.
