The GST Council’s recent decisions are being seen as the most significant reform of India’s indirect tax system since its introduction. The rationalisation of rates and consolidation of slabs aims to:

Reduce inflationary pressures

Boost consumer demand

Support economic growth

Maintain fiscal discipline

The total cost of this initiative is estimated at ₹48,000 crore, which is manageable for the government.

Why Timing Matters

Global economic pressures, such as US tariff increases, threaten indian exports.

Rationalising GST is a domestic counterbalance to external shocks.

Crises historically (1991, 2008, 2020) have been catalysts for reform—this is another such moment.

Achievements of GST 2.0

Reduction in GST slabs

Simplifies compliance

Reduces classification disputes

Faster relief to businesses

Smoother cash flows

Reduced litigation

Political and fiscal balance

Shows government delivering relief while respecting fiscal prudence

Signals cooperative federalism with data-aligned states

What GST 2.0 Did Not Do

Rate structure is still complex

Could have been collapsed into two slabs:

5% on general goods

50% on sin and luxury products

Would increase transparency and consumption

Partial simplification

Many goods still subject to multiple slabs

Sectors like petroleum and alcohol remain outside GST, leaving structural gaps

Inequity in tax burden

Poor and middle class bear a disproportionate GST burden

Wealthiest contribute only slightly more

India’s reliance on indirect taxes remains high due to a narrow direct-tax base

Key Statistics

GST currently excludes ~5% of GDP and ~40% of state revenues

Inclusion of untaxed sectors could raise:

Tax base: ₹140 trillion → ₹157 trillion

Collections: ₹25 trillion → ₹40 trillion

Household consumption data shows rural poorest 50% pay 30% of GST, urban richest 20% pay only 37–41%

The Road Ahead

GST 2.0 reduces inflation and smooths business operations, but it is only a partial simplification.

Enforcement against leakages and fraud is crucial.

A bolder reform would:

Simplify slabs further

Include politically sensitive sectors

Make taxation more equitable

India must rethink its fiscal social contract: heavy reliance on regressive indirect taxes is unfair and unsustainable.

True reform requires courage and consensus, moving beyond incremental changes.

✅ Takeaway

GST 2.0 is a step forward, but not the destination. While it eases compliance, smooths cash flows, and relieves consumers, structural inequities and complexity remain. Real tax reform will require:

Slab simplification

Inclusion of untaxed sectors

Stronger direct taxation

Equitable burden sharing

India has made progress, but the bold leap to a fairer, simpler, and more efficient GST is still pending.

 

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