GST 2.0 to offer treatment for other pain points too

The proposed goods and services tax (GST) 2.0, hammered out over months of extensive deliberations, will go beyond the mere reduction of rates. It will be a deep-dive overhaul of the indirect tax framework that was rolled out eight years ago, officials said. The revamp will seek to bring an end to classification disputes, duty inversions and procedural issues to provide stability and clarity to businesses, they said.

The exercise will also be accompanied by a push for greater alignment and coordination between the state and central tax authorities on assessment, audit and investigation to ensure that businesses do not face multiple actions for the same matter, the officials said.

The GST Council, the apex decision-making body on the levy, is likely to meet September 18-19 to take up the proposed changes, they said.

Prime Minister Narendra Modi had highlighted the coming changes in GST during his Independence Day address on Friday, calling it a “Diwali gift” for the people of the country.

GST 2.0 will also reduce the tax burden by having only two major slabs — 5% and 18%. “Rate rationalisation is one part of the proposal, but it goes much beyond that… This is an opportunity for a wider reform of the structure,” one of the officials told ET.

Divergent decisions by various courts on the taxation of the same items had given rise to ambiguity, he said. Other challenges related to inverted duty structures and input tax credit are being addressed through this exercise in a comprehensive manner, the person said.

“GST with multiple changes every now and then had become a work in progress,” another official said.

Special levy for sin goods

“The proposed exercise aims to revamp and simplify the structure in a holistic and comprehensive way instead of a piecemeal exercise,” official said.

The recast also aims to resolve classification disputes that have arisen due to different varieties of similar goods having been placed in various slabs. The official said no differentiation would be made on account of divergent prices for the same good as a principle.

Issues related to whether a namkeen is extrusion-based or non-extrusion-based or whether a product is sweet or savoury — thus attracting different tax rates — will not arise following the changes. The Centre, in its proposal, has sought to scrap the 12% and 28% slabs, retaining only the 5% and 18% rates. Most of the items of daily consumption, those used in farming or related to health are expected to be in the 5% bracket. A special rate of 40% will be introduced for about half-adozen items that will include so-called sin goods and luxury cars.

“We have examined each item and issues around it,” the second official said. “The idea was to look ahead and not how it was done in the past, line by line… It was an intensive and rigorous exercise.”

The proposal has already been sent to the group of ministers (GoM) that the GST Council had set up on rate rationalisation. The panel will deliberate on the Centre’s proposal in the coming week. The GoM’s recommendations will be placed before the GST Council.

The Centre will hold discussions with the states on the proposal, which has the potential to perk up domestic consumption and bolster growth. Officials are hopeful that the timelines can be met to meet the festive season shopping date.