{"id":60146,"date":"2025-08-20T11:03:06","date_gmt":"2025-08-20T05:33:06","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=60146"},"modified":"2025-08-20T11:03:06","modified_gmt":"2025-08-20T05:33:06","slug":"indias-two-tier-gst-reform-long-term-revenue-gains-ahead","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/indias-two-tier-gst-reform-long-term-revenue-gains-ahead\/","title":{"rendered":"India\u2019s Two-Tier GST Reform: Long-Term Revenue Gains Ahead"},"content":{"rendered":"<h2><b>GST Reform in India Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">S&amp;P Global Ratings noted that the proposed <\/span><b>two-tier <\/b><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/goods-and-services-tax\/\" target=\"_blank\"><b>GST<\/b><\/a><b> structure<\/b><span style=\"font-weight: 400;\"> could reduce the effective taxation rate while boosting <\/span><b>long-term fiscal revenues<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Centre\u2019s proposal, to be discussed with states in an upcoming meeting, aims to simplify GST by reducing the slabs to just <\/span><b>5% and 18%<\/b><span style=\"font-weight: 400;\">, along with a special <\/span><b>40% rate<\/b><span style=\"font-weight: 400;\"> for select luxury or sin goods.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This reform is expected to <\/span><b>streamline compliance, reduce complexity, and potentially increase government revenues<\/b><span style=\"font-weight: 400;\"> over time, though its short-term impact on collections and affordability remains to be seen.<\/span><\/li>\n<\/ul>\n<h2><b>The Proposed Two-Slab GST System<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The central government plans to move from the current four-rate GST structure to two slabs of <\/span><b>5% and 18%<\/b><span style=\"font-weight: 400;\">, with an additional <\/span><b>40% rate for sin and demerit goods<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Currently, there are <\/span><b>4 slabs under GST<\/b><span style=\"font-weight: 400;\"> &#8212; <\/span><span style=\"font-weight: 400;\">5, 12, 18 and 28 per cent<\/span><span style=\"font-weight: 400;\"> and the taxation system has been an important component of the government&#8217;s revenues.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This reform is expected by the end of 2025 and aims to simplify compliance while reducing distortions in the indirect tax regime.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The changes will reduce classification disputes, scope for litigation and evasion as well as remove duty inversion.<\/span><\/li>\n<\/ul>\n<h3><b>Declining Effective GST Rates<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Since its launch in 2017, GST rates have been gradually reduced.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">An RBI study in 2019 found that the weighted average GST rate had dropped from <\/span><b>14.4% to 11.6%<\/b><span style=\"font-weight: 400;\">, achieved through base broadening and removing distortions.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This trend is expected to continue under the new structure.<\/span><\/li>\n<\/ul>\n<h2><b>S&amp;P\u2019s Position on GST Reform<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">S&amp;P Global Ratings has dismissed concerns that the Centre\u2019s proposal to reform the Goods and Services Tax (GST) regime will harm fiscal revenues.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Director of the organisation explained that while tax rates may appear lower under the proposed <\/span><b>two-slab system<\/b><span style=\"font-weight: 400;\">, simplified implementation and transparent accounting could actually improve revenue collection in the long run.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It highlighted that GST has been a key driver of fiscal revenues over the past five to six years.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">S&amp;P believes reforms will continue strengthening government finances rather than weakening them, even if short-term adjustments create some pressure.<\/span><\/li>\n<\/ul>\n<h3><b>Debt and Fiscal Targets<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">S&amp;P forecasts the combined central and state fiscal deficit at <\/span><b>7.3% of GDP in 2025\u201326<\/b><span style=\"font-weight: 400;\">, narrowing to <\/span><b>6.6% by 2028\u201329<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Interest servicing remains a heavy burden but should ease gradually due to stronger revenues and cheaper financing.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India\u2019s debt-to-GDP ratio is projected to fall from <\/span><b>83% in 2024\u201325 to 78% by 2028\u201329<\/b><span style=\"font-weight: 400;\">, with the Centre targeting <\/span><b>49\u201351% by 2030\u201331<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<h3><b>Rating Upgrade and Long-Term Outlook<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">S&amp;P upgraded India\u2019s rating to <\/span><b>BBB from BBB-<\/b><span style=\"font-weight: 400;\">, citing its robust economic performance.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The agency stressed that India\u2019s reforms, including GST rationalisation, support long-term fiscal sustainability despite short-term uncertainties.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It upgraded India\u2019s rating to BBB from BBB- citing:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Strong and resilient economic expansion.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Political commitment to fiscal discipline.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Improved quality of government spending through higher capital expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">A credible monetary policy framework ensuring controlled inflation.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>Economists\u2019 Perspective on Fiscal Impact<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Economists note that state governments could face revenue losses estimated at <\/span><b>\u20b97,000\u20139,000 crore annually<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, these may be offset by stronger GDP growth, which boosts both direct and indirect tax collection.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">For 2025\u201326, the central government\u2019s fiscal deficit impact is expected to be less than <\/span><b>0.1% of GDP<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <a href=\"https:\/\/indianexpress.com\/article\/business\/gst-reform-gets-sp-approval-government-revenue-10198918\/\" target=\"_blank\" rel=\"nofollow noopener\"><span style=\"font-weight: 400;\">IE<\/span><\/a><span style=\"font-weight: 400;\"> | <\/span><a href=\"https:\/\/economictimes.indiatimes.com\/news\/economy\/policy\/proposed-2-tier-gst-structure-could-lower-effective-tax-rate-boost-revenues-in-long-term-sp\/articleshow\/123387070.cms?from=mdr\" target=\"_blank\" rel=\"nofollow noopener\"><span style=\"font-weight: 400;\">ET<\/span><\/a><span style=\"font-weight: 400;\"> | <\/span><a href=\"https:\/\/www.business-standard.com\/economy\/news\/gst-reforms-could-boost-india-fiscal-revenues-sp-125081901070_1.html\" target=\"_blank\" rel=\"nofollow noopener\"><span style=\"font-weight: 400;\">BS<\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>S&#038;P says India\u2019s two-slab GST reform could simplify compliance, lower effective rates, and boost long-term government revenue while improving fiscal sustainability.<\/p>\n","protected":false},"author":18,"featured_media":60161,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[2268,60,22,59],"class_list":{"0":"post-60146","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-gst-reform-in-india","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/60146","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=60146"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/60146\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/60161"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=60146"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=60146"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=60146"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}