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The Think Change Forum has called for GST 2.0 to simplify India's tax structure by adopting only two slabs 5 per cent and 18 per cent with the peak rate capped at 18 per cent. The report argues that a 40 per cent slab would create scope for gradual expansion, undermining simplification. It recommends transparency in additional cesses, eliminating anomalies like inverted duty structures, and avoiding hidden revenue measures. The GST Council is set to discuss these reforms, which aim to enhance compliance, reduce distortions, and support India's economic growth while moving toward a single nationwide tax rate.
A recent report by the think tank Think Change Forum highlighted that the long-term success of India's Goods and Services Tax (GST) depends on moving toward a single nationwide tax rate. It recommended that GST 2.0 should act as a transitional step, adopting only two slabs 5 per cent and 18 per cent while ensuring that the peak rate does not exceed 18 per cent, instead of introducing a 40 per cent slab for select goods. Advertisement
The report noted that creating a 40 per cent slab, even for a small set of sin or luxury goods, could lead to gradual expansion of this category over time, which would undermine the goal of simplification. Titled GST 2.0: Two Slabs Today, One Rate Tomorrow, the report urged fixing the top indirect tax rate, including cesses, at 18 per cent. According to the think tank, this step would immediately remove anomalies like inverted duty structures, curb grey and illegal markets, reduce litigation and compliance burdens, and strengthen the credibility of the GST system.
The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, is scheduled to meet in the coming week to discuss transitioning to a two-slab system of 5 and 18 per cent. The council, which brings together finance ministers from all states and Union Territories along with the Centre, will also examine recommendations from three Groups of Ministers regarding rate rationalization, compensation cesses, and taxation of health and life insurance.
The report emphasized that moderating taxes is not a loss in revenue but a strategy to boost economic growth. By reducing distortions in the system, India can encourage higher consumption, improve compliance, and eventually generate substantial tax collections to support its goal of becoming a developed economy.
Greater transparency around additional cesses and surcharges on luxury and demerit goods was also recommended. The report proposed a "Cess Rulebook" with clear guidelines on when and how cesses can be levied, indexed, or sunset. This framework would make tax planning predictable and enhance confidence in India's indirect tax system.
The report cautioned against indirect revenue measures that distort GST design, such as taxing based on maximum retail price instead of transaction value or exempting sectors like insurance without preserving input tax credits, which could create hidden costs.
Speaking at the report's launch, Think Change Forum Secretary General Ranganath T said GST reforms must go beyond symbolism and that implementation details are critical for them to benefit citizens. He added that a transparent, predictable tax system, with the peak rate at 18 per cent and a gradual move toward a single rate, is essential to realize the goal of "One Nation, One Tax."
Professor Nilanjan Banik of Mahindra University and co-author of the report stated that GST 2.0 should avoid repeating past mistakes by creating multiple slabs or raising the peak rate. He emphasized that simplifying maintaining two slabs now and eventually moving to a single rate would increase compliance, reduce distortions, and ensure sustainable revenue growth.
Source PTI
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