Budget 2024: GST 2.0 in line? Here's what experts suggest about central govt's move

Budget 2024: The Confederation of Indian Industries (CII) advocates for a three-rate structure.

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Courtesy: ANI

Budget 2024: Experts anticipate that with the resolution of most initial challenges and monthly revenue stabilising at over Rs 1.6 lakh crore, the central government is poised to advance second-generation reforms in the Goods and Services Tax (GST) regime.

Budget 2024: Outlining anticipated reforms

Finance Minister Nirmala Sitharaman is expected to outline the trajectory of GST reforms in the upcoming interim budget presentation on February 1, according to MS Mani, a partner at Deloitte India.

"While GST modifications necessitate the consensus of the GST Council, providing a broad roadmap for the next phase of GST reforms would be beneficial for businesses," Mani remarked.

Budget 2024: Key aspects of reform

The impending second-generation GST reforms are likely to focus on two primary areas: rationalisation of tax slabs and the inclusion of petroleum products within the GST framework.

Unlike many countries with GST systems featuring one or two tax slabs, India currently maintains four main GST slabs - 5%, 12%, 18%, and 28%, with applicable cess. Additionally, certain items such as gold and precious stones are taxed at special rates.

Budget 2024: Panel recommendations, potential changes

In 2021, a Group of Ministers (GoM) chaired by the former Karnataka Chief Minister Basavaraj Bommai was formed to propose GST slab rationalisation. Following a change in government in Karnataka, the panel, now led by Uttar Pradesh Finance Minister Suresh Khanna, is revisiting these recommendations.

Mani predicts a reduction in tax slabs to three, with the potential elimination of the 12% slab, merging items with either 18% or 5%. There's also speculation about elevating the 5% slab to 8%, with most products currently taxed at 18%. Luxury and sin goods incur the highest slab of 28% plus cess, a rate that has undergone multiple revisions by the GST Council.

Budget 2024: Advocacy for three-rate structure

Meanwhile, the Confederation of Indian Industries (CII) advocates for a three-rate structure, comprising a low rate for essentials, standard rate for most goods, and a high rate for luxury and demerit goods. CII also signals the inclusion of petroleum products, electricity, and real estate under the GST regime.

Budget 2024: Challenges with petroleum products

Incorporating petroleum products into GST remains contentious, as they constitute a significant revenue source for both the central and state governments. While the centre champions their inclusion, many states remain apprehensive.

Sitharaman remains optimistic about eventual consensus among states, highlighting the potential inclusion of aviation turbine fuel (ATF) and natural gas under GST due to fewer anticipated objections compared to diesel and petrol.

Budget 2024: Impetus from strong tax collections

Buoyant tax collections, averaging Rs 1.66 lakh crore monthly in the first nine months of the fiscal year, bolster the government's confidence in advancing pending reforms.

The anticipated reforms signal the government's commitment to evolving the GST framework, potentially streamlining processes and enhancing economic efficiency in the taxation landscape.