India may be on the verge of witnessing one of the most sweeping tax reforms since the Goods and Services Tax was first implemented in 2017. During his Independence Day speech from the historic Red Fort, Prime Minister Narendra Modi raised expectations by announcing plans for what he described as a “next-generation GST reform.” His remarks have sparked anticipation of a major restructuring of the GST system, with the possibility of significant reductions in tax rates before the upcoming Diwali festive season. The Prime Minister framed the move as part of an ongoing effort to simplify taxation, reduce the burden on ordinary citizens, and stimulate the country’s economy.
In his address, Prime Minister Modi recalled the government’s efforts over the past eight years to roll out GST and bring greater uniformity to the tax structure. He emphasised that the time had now come for a comprehensive review of the system, which has been shaped by continuous feedback from the states. Promising what he called a “great gift” for the festival of Diwali, he said the planned reforms would sharply lower taxes on essential goods and services used by the common man. In particular, he highlighted that micro, small, and medium enterprises would stand to benefit from the changes, which are intended to make business operations smoother and more cost-effective.
The current GST regime, with its five main slabs of 0%, 5%, 12%, 18%, and 28%, has frequently drawn criticism from businesses, households, and tax professionals. Critics argue that the multi-slab structure is unnecessarily complicated and creates a significant compliance burden, particularly for smaller enterprises in non-metropolitan areas. Consumers have also expressed frustration over the relatively high taxes on essential goods and services, which they believe place undue strain on household budgets. Over time, the complexity of filing returns and the uneven distribution of items across slabs have prompted repeated calls for simplification.
Industry associations and consumer advocacy groups have consistently urged the government to streamline the GST framework by reducing the number of slabs, lowering taxes on everyday goods, and making compliance requirements less cumbersome. According to sources familiar with the ongoing discussions, the government is actively considering the removal of the 12% slab entirely, redistributing items in that category into the lower 5% and higher 18% brackets. This shift could bring down the prices of commonly used products such as ghee, soaps, snacks, and other household staples, directly benefiting consumers.
The upcoming GST Council meeting, scheduled for later this month, is expected to play a decisive role in finalising the changes. Holding the meeting at this time would allow for the revised tax rates to be implemented in time for Diwali, ensuring that the benefits reach the public during the peak festive shopping season. While officials have not yet disclosed all the specifics, it is understood that the reforms will be designed to cut taxes on widely used goods and services, thereby easing the cost of living while also providing targeted relief to MSMEs.
If the changes proceed as anticipated, they could have far-reaching effects on the economy. Lowering the tax burden on essential goods would likely help to ease inflationary pressures, leaving consumers with more disposable income to spend. This, in turn, could boost consumption and drive demand across a range of sectors, providing an economic lift just as the festive season approaches. The reform would not only mark a significant policy shift but could also serve as a symbolic gesture of goodwill from the government, reinforcing its commitment to making the tax system simpler, fairer, and more attuned to the needs of ordinary citizens and businesses alike.
