GST will undergo a major restructuring since its roll-out in 2017; it will give a boost to consumption and production, though it comes with a price tag of Rs 50,000 crore
The Indian economy is as resilient as ever, but it has come under severe attack from none other than the US President Donald Trump, who mocked it as a “dead economy.” It is true that of late the economy is facing issues, and many of its sectors, including the automobile industry, FMCG, and mining and quarrying, are facing challenges. The Government is now taking major steps to correct the dips. A major GST reform is on the cards. To overhaul India's indirect taxation framework, Finance Minister Nirmala Sitharaman is set to present the Centre's case for sweeping reforms to the Goods and Services Tax (GST) structure at a key meeting with a Group of Ministers (GoM) on August 20-21, 2025. The proposed changes promise a significant simplification of the GST system, a reduction in consumer prices, and a much-needed stimulus to consumption and economic growth.
At the heart of the Centre's proposal is a rationalisation of GST tax slabs from the current four (5 per cent, 12 per cent, 18 per cent, and 28 per cent) to just two major slabs — 5 per cent and 18 per cent — alongside a special 40 per cent “sin tax” for select demerit goods. After its approval, 5 per cent GST would cover essential goods, aimed at easing the burden on the middle class and rural population, while 18 per cent GST would be applicable to most of the items currently in the 12 per cent and 28 per cent categories. The 40 per cent GST would be applicable to high-tax items such as pan masala, tobacco, and online gaming-products deemed non-essential or harmful. This overhaul, if approved by the GoM and later ratified by the GST Council, will eliminate the 12 per cent and 28 per cent slabs altogether. The rejig is expected to reduce the cost of a wide range of daily-use and mid-range items, including toothpaste, pressure cookers, hair oil, utensils, readymade garments, shoes, mobile phones, and computers. Cars and two-wheelers, which are currently taxed at 28 per cent plus cess, could shift to the 18 per cent slab, potentially reducing prices by 10-15 per cent and giving a much-needed boost to the automobile sector.
However, this economic booster would cost the exchequer a whopping sum of Rs 50,000 crore, but the economic impact is expected to be positive. It is likely to increase consumer spending on commonly used items. Vehicle sales would rise across different segments. Besides, GST simplification would also be a big support to MSMEs and the agriculture sector. With essential goods seeing reduced GST, small businesses and farmers may benefit from lower input costs and increased demand.
Not to forget, it would be easier for entrepreneurs to file simpler returns and face reduced disputes, benefiting businesses and tax authorities alike. With better margins and demand, labour-intensive sectors such as garments, electronics, and consumer goods could see growth and the creation of job opportunities. The structural simplification of GST could enhance India's appeal as an investment destination. The 2025 GST rejig will determine not just what becomes cheaper, but how India grows.
