Next-Gen GST reforms build on GST’s success with a simplified 2-tier structure (5% and 18%), fairer taxation, and digital filing for ease and faster refunds.
- A new 40% tax rate has been introduced for luxury and sin goods like pan masala, cigarettes, etc.
Benefits of the Recent Changes
- Social Protection: Exemption of GST on insurance and essential medicines strengthens household security and access to healthcare.
- Lower Prices, Higher Demand: Cheaper goods and services increase household savings and stimulate consumption.
- Support for MSMEs: Reduced rates on inputs like cement, auto parts, and handicrafts lower costs and make small businesses more competitive.
- Ease of Living: A two-rate structure means fewer disputes, quicker decisions, and simpler compliance.
- Wider Tax Net: Simpler rates encourage compliance, expanding the tax base and improving revenues.
Key Challenges in recent changes
- Revenue foregone: It could lead to a revenue loss of ~₹48,000 crore (on the FY23-24 consumption base), as per the Finance Ministry.
- Removal of input tax credit (ITC): From goods such as healthcare products and insurance may lead to the problem of cascading taxes.
- Lack of clarity over revival of National Anti-profiteering Authority: It was initially set up for two years (that can be extended by the GST Council) to ensure businesses passed on the benefits of GST rate cuts to consumers.
