Govt Proposes Sweeping GST Overhaul with 2 Slabs, 40% Sin Tax in Big ‘Diwali Gift’
Following Prime Minister Narendra Modi’s Independence Day announcement of “next-generation GST reforms,” the government has proposed a major overhaul of the tax structure, recommending a simplified two-slab system of 5% and 18%. The proposal, which has been sent to the GST Council for deliberation, also includes a steep 40% tax on sin goods like tobacco and pan masala, with the final changes expected to be rolled out by Diwali.
In his address from the Red Fort, Prime Minister Modi had promised a “great gift” to the nation, stating that the time had come to review and simplify the eight-year-old Goods and Services Tax. “We have conducted it, consulted with states, and are set to introduce a ‘next-generation GST reform’,” he declared, aiming to ease the tax burden on households and small businesses.
According to government sources, the rationalization plan aims to eliminate the current 12% slab, redistributing the items under it into the 5% and 18% categories. This move is designed to simplify the existing five-rate structure and reduce classification-related disputes. The reform also promises significant relief for key sectors, with proposed tax cuts for farm products, health and life insurance, and handicrafts.
The government believes this overhaul will make daily-use products cheaper, boost consumption, and stimulate overall economic growth. “This will be a Diwali gift, taxes on essential services for individuals will be reduced substantially. MSMEs will benefit,” PM Modi said.
While officials acknowledge that the lower rates could cause a temporary dip in revenue, they anticipate that higher sales volumes and improved compliance will offset the impact in the long run. The GST Council is set to hold a crucial two-day meeting in September to finalize the details and pave the way for the pre-Diwali implementation.
