Why in news?
The GST reforms reduce the GST slabs from four to two main rates: 5% and 18%, replacing the earlier 12% and 28% slabs. A new 40% rate is introduced for luxury and sin goods like pan masala, tobacco products, aerated drinks with added sugar, and high-end vehicles.
 
Highlights of GST Reforms 2025

• Two-Slab Structure: Simplification to 5% (essential goods) and 18% (standard rate for most other goods and services). This replaces the previous four slabs and reduces complexity.
• Luxury and Sin Goods: Introduction of a higher 40% rate on luxury and sin goods such as tobacco, mid-size and large cars, aerated drinks with added sugar, and personal aircraft, ensuring fairness and revenue balance.
• Relief for Common Man: Tax rates on daily essentials, household items (soaps, toothpaste, Indian breads like roti and paratha), agricultural implements, medicines (including anti-cancer drugs), and individual life and health insurance are reduced or exempted, providing direct relief.
• Boost to Manufacturing & Agriculture: Lower GST on consumer durables like air conditioners, dishwashers, TVs (LCD, LED), small automobiles, two-wheelers under 350cc, and construction materials like cement is expected to spur demand, affordability, and job creation.
• MSME Support: Simplified registration and return filing, faster refunds, and reduced compliance costs to ease business operations and strengthen cash flows.
• State Revenue & Economic Growth: The reforms improve state revenue streams and are aimed at increasing domestic consumption, manufacturing growth, and formalization of businesses.
• Administrative Reforms: Faster GST registration for low-risk businesses (96% of new applicants), streamlined refund mechanism, and better dispute resolution are expected to enhance ease of doing business.

Economic impact

Boost to MSMEs and Manufacturing

• Reduced tax rates on inputs such as cement, auto parts, textiles, and agricultural machinery lower costs for MSMEs and manufacturers, making them more competitive.
• Simpler compliance and faster refunds improve cash flows, enabling businesses to invest and grow.

Formalization and Revenue Expansion

• Simplified slab structure encourages greater compliance, broadening the tax base and improving revenue collection efficiency.
• Correcting inverted duty structures supports domestic manufacturing and export competitiveness by reducing input tax burdens and streamlining export refunds.

Investment and Economic Growth

• Predictable and stable tax environment attracts foreign and domestic investment.
• Sectoral benefits to agriculture, construction, healthcare, education, and textiles spur inclusive economic growth.
• Lower input costs and improved demand foster job creation, industrial growth, and higher consumption.

Fiscal and State Revenue Considerations

• Although some states expressed concerns over potential revenue losses (estimated between ₹80,000 to 1.5 lakh crore), consensus was built recognizing the reforms' long-term growth benefits.
• The government estimates a net fiscal impact of around ₹48,000 crore based on 2023–24 consumption data, balanced by expected revenue gains from improved compliance and growth.

Conclusion
Overall, the two-slab GST reform aims to create a virtuous cycle of economic expansion through lower prices, higher demand, easier doing of business, and wider tax compliance. It aligns India’s indirect tax system closer to global best practices and supports a more resilient and growth-oriented economy.

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