New Delhi: The Finance Ministry on Friday issued a detailed statement outlining the Centre’s proposal for next-generation Goods and Services Tax (GST) reforms, shortly after Prime Minister Narendra Modi, in his 79th Independence Day address, hailed GST as a landmark reform that has benefited the nation since its rollout in 2017.

In a major announcement, the prime minister said the next-generation GST reforms by Diwali is aimed at reducing taxes on daily-use items.

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"The government will bring Next Generation GST reforms, which will bring down tax burden on the common man. It will be a Diwali gift for you," he said, ensuring that these reforms directly benefit citizens and stimulate economic activity.

The reforms, aimed at building an Atmanirbhar Bharat, are anchored on three pillars, structural reforms, rate rationalisation, and ease of living, and have been sent to the Group of Ministers (GoM) constituted by the GST Council for examination.

What are the key changes in the proposed GST reforms:

Pillar 1: Structural reforms:

Inverted duty structure correction: The correction of inverted duty structures to align input and output tax rates so that there is a reduction in the accumulation of input tax credit. This would support domestic value addition.

Resolving classification issues: Resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.

Stability and Predictability: Provide long-term clarity on rates and policy direction to build industry confidence and support better business planning.

Pillar 2: Rate Rationalisation:

Reduction of taxes on common-man items and aspirational goods: This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population.

Reduction of slabs: Essentially move towards a simple tax with 2 slabs – standard and merit. Special rates only for select few items.

Compensation Cess: The end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.

Pillar 3: Ease of Living:

Registration: seamless, technology-driven, and time-bound, especially for small businesses and startups.

Return: Implement pre-filled returns, thus reducing manual intervention and eliminating mismatches.

Refund: faster and automated processing of refunds for exporters and those with an inverted duty structure.

The ministry said these measures will strengthen key economic sectors, stimulate economic activity, and expand the tax base while ensuring benefits reach the common man, women, farmers, students, and MSMEs.

The GST Council, chaired by Finance Minister Nirmala Sitharaman, is expected to deliberate on the GoM’s recommendations at its September meeting. Currently, GST is a four-tier structure of 5%, 12%, 18%, and 28%.