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 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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