New Delhi, August 19, 2025 — In a pivotal move aimed at simplifying India’s indirect tax regime, Finance Minister Nirmala Sitharaman is set to present a proposal to restructure the Goods and Services Tax (GST) before a Group of Ministers on August 20. The plan recommends transitioning to a streamlined two-slab system:
- 5% GST on essential goods
- 18% GST as the standard rate for most other items
Economic Implications
If approved, the reform could have far-reaching effects on the Indian economy. Analysts suggest the simplified structure may lead to:
- A reduction in inflation due to lower taxes on essential commodities
- Increased consumer spending driven by price clarity and reduced tax burden
- An estimated annual GDP growth boost of up to 0.6%, according to preliminary projections
Rationale Behind the Reform
India’s current GST framework includes multiple tax slabs—5%, 12%, 18%, and 28%—which have often led to classification disputes, compliance burdens, and pricing confusion. The proposed two-slab system is designed to:
- Enhance ease of doing business
- Improve tax compliance and reduce litigation
- Create a more predictable and transparent tax environment for consumers and businesses alike
Industry Response
The proposal has garnered cautious optimism across sectors. Industry leaders believe the reform could streamline operations, improve margins, and foster a more consumption-driven economy. Economists view the move as a strategic step toward fiscal consolidation and long-term growth.
Next Steps
The Group of Ministers will deliberate on the proposal on August 20. If consensus is reached, the new GST structure could be implemented in phases starting in the fourth quarter of FY2025–26, with full rollout expected by mid-2026.