The GST Council, India’s apex decision-making body on indirect taxes, will hold its next meeting on September 3 and 4, where it is expected to take up the Central Government’s proposal for a two-rate GST structure. The agenda includes a detailed discussion on the recommendations submitted by various Groups of Ministers (GoMs), which were constituted earlier to review and reform the Goods and Services Tax (GST) system.

This meeting is being closely watched by industry leaders, taxpayers, and policymakers, as it could set the stage for one of the most significant tax reforms since the GST was rolled out in July 2017.

Background of the Two-Rate GST Proposal

Currently, India follows a multi-rate GST structure, with slabs at 5%, 12%, 18%, and 28%, along with special rates on certain items such as gold, precious stones, and luxury goods. While this structure was intended to balance revenue needs with consumer affordability, it has often been criticised for its complexity and compliance challenges.

The Central Government has now proposed moving towards a simplified two-rate GST regime, which is expected to reduce classification disputes, improve compliance, and create a more predictable tax environment for businesses.

The exact rate structure is yet to be finalised, but preliminary discussions suggest that the government is considering a lower slab for essential goods and services and a higher slab for non-essential and luxury items.

Key Issues Likely to be Discussed

1. Rationalisation of Rates:
   The Council will examine whether a two-rate structure can balance the twin goals of revenue neutrality and simplification.

2. Revenue Implications for States:
   States are concerned about potential revenue losses if the number of tax slabs is reduced. Compensation mechanisms may be debated.

3. Impact on Businesses:
   Industry groups have been pushing for a simpler GST system to reduce compliance costs, litigation, and classification disputes.

4. Exemptions and Special Rates:
   Items currently taxed at concessional or nil rates may be reviewed to ensure consistency within the new structure.

Recommendations of the Groups of Ministers

The GoMs formed by the GST Council have been tasked with reviewing specific issues, including:

• Rate Rationalisation: Studying anomalies and suggesting measures for simplification.

• Casino, Lottery, and Online Gaming Taxation: Proposing a unified approach for emerging industries.

• IT and Compliance Improvements: Suggesting digital reforms to improve efficiency and reduce evasion.

Their reports are expected to provide a basis for the Council’s discussions in the upcoming meeting.

Possible Benefits of a Two-Rate Structure

• Simplified Compliance: Businesses will find it easier to manage fewer tax categories.

• Reduced Litigation: Fewer disputes over classification of goods and services.

• Ease of Doing Business: A more predictable and transparent tax regime boosts investor confidence.

• Consumer Clarity: End-users can better understand applicable tax rates.

Concerns and Challenges

• Revenue Risks: A major concern for states, which depend heavily on GST revenue.

• Transition Issues: Businesses will need time and support to adapt IT systems and processes.

• Political Consensus: Achieving agreement among all states may take time, given varied revenue structures.

Significance of the September Meeting

The GST Council meeting on September 3-4 will be a crucial turning point in India’s tax reform journey. While consensus-building among the Centre and states may take more than one sitting, the discussions will shape the future roadmap for GST.

If approved, the two-rate GST structure could be one of the most transformative reforms since GST’s launch, marking a significant step towards a simpler, more efficient, and growth-friendly indirect tax regime.

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