Budget 2024: Finance Minister may outline plans for GST 2.0 in Budget, says Experts

With most of the basic problems, such as glitches in online portals, invoice matching, and refund delays, largely resolved and monthly revenue averaging more than Rs 1.6 lakh crore, experts predict that the centre will push forward with second-generation GST reforms.

Finance Minister Nirmala Sitharaman is expected to provide a broad framework of GST system reforms in the interim budget, which will be presented on February 1, according to experts.

“Although GST changes will need the approval of the GST Council, an overall direction in terms of the thought process on the next stage of GST reforms would be encouraged by businesses,” as per a statement.

There are two major difficulties that would signal the second-generation GST reform. The first is to rationalise tax slabs, and the second is to include petroleum products under the GST.

Most countries that use GST or comparable countrywide taxation have one or two slabs. India has four primary GST tax slabs: 5%, 12%, 18%, and 28%, with applicable cess. Aside from that, there are some unique rates. Gold is taxed at 3%, whereas rough precious and semi-precious stones attract 0.25% GST.

In 2021, a group of ministers (GoM) was formed under the chairmanship of then-Karnataka Chief Minister Basavaraj Bommai to propose rationalisation of GST slabs and rates. In June 2022, the Bommai panel delivered an interim report and asked the GST Council for extra time to consider their rate proposals.

However, due to a change in government in Karnataka, the panel was reassembled. It is now led by Uttar Pradesh Finance Minister Suresh Khanna. The seven-member panel consists of finance ministers from Kerala, Karnataka, West Bengal, Rajasthan, Bihar, and Goa.

According to experts, the tax slabs would most certainly be cut to just three. “My guess is that 12% of the slab will be fully removed. The products will be integrated with either 18% or 5%,” he added, adding that the 5% slab might be rejigged to a higher 8% rate. The majority of things are taxed at 18%.

The highest rate of 28% + cess is paid on luxury, demerit, and sin goods. The GST Council has changed the rates for a variety of products multiple times.

The Confederation of Indian Industries (CII) has also proposed a three-rate system.

“Low rate for necessities, standard rate for most things, and high rate for luxury and depreciation items. Signal to bring items (petroleum, electricity, and real estate) that are currently exempt from GST into the GST regime,” the CII stated in its suggestions for the union budget.

Bringing petroleum goods under the GST scope has been a contentious subject between the central and the states, as taxes on petroleum products are a significant source of revenue for all.

While the union government has advocated for including petroleum products in the GST, most states remain apprehensive. “Once the states agree, we will have petroleum products covered by GST,” Sitharaman stated during a post-budget session last year.

The central may attempt to include aviation turbine fuel (ATF) and natural gas in the GST scope because the prospect of state rejection to these items is lower than for diesel and petrol.

Furthermore, booming tax collections would give the government a lot of confidence to push forward with planned reforms. In the first nine months of the current financial year, the average monthly GST collection was Rs 1.66 lakh crore, up 12% year on year.