The government has begun new discussions about changing the structure of the goods and services tax (GST). The Centre intends to simplify and streamline the tax system by reworking the current rate slabs.

Key Highlights

• India initiates GST overhaul talks to simplify tax slabs and enhance system efficiency and competitiveness.
• Upcoming GST changes aim to align with global trade deals and address industry concerns effectively.

Senior officials told that top-level meetings have recently been held to discuss ways to improve GST. The timing of these talks coincides with India finalizing trade agreements with the US and the UK. According to officials, the objective is to guarantee that local tax laws do not put Indian industries at a competitive disadvantage.

GST, which went into effect in July 2017, consolidated many indirect taxes into a single system and created a unified national market. 

Structural Changes Are Being Considered

One official told that "GST is a key focus area," and that the government wants to address both the design of the tax system and how it is implemented. Senior officials believe that small changes will not suffice, and that deeper reforms are required to improve the way GST works for businesses and consumers.

Another official  "tax collections have stabilised, and with the compensation cess about to expire, it is an opportune time to make a decision on the broad structure of the tax." "The exercise should be meaningful enough to make a difference on the ground."

The compensation cess was enacted to compensate for any revenue loss that states may experience due to GST. With this assistance expiring soon, the government believes it is a good time to review and possibly change the structure.

Focus On Slabs And Industrial Feedback

The discussions have primarily concerned the number and design of GST rate slabs. The current system includes multiple slabs, which several industry groups have said causes confusion and increases the burden of compliance.

Industry groups and tax experts have proposed a simpler three-slab structure. They have also advocated for simpler rules, increased clarity, and improved enforcement.

Concerns have also been raised about field officers' strict behavior and the complicated system in which both central and state governments are involved in tax collection and checks.

The official stated, "Competitiveness of India Inc is crucial and the government is looking at areas to further ease of doing business so that industry can take real advantage of these agreements."

A group of ministers was assembled by the GST Council, the highest authority responsible for deciding on indirect tax issues, in September 2021 to research changes to the GST rate. However, because different people have different ideas about what should be changed, the panel has not made any noticeable progress.

Some of the options considered include using dual rates and limiting the price of luxury goods. However, industry experts believe that such moves may confuse rather than simplify the system.