The Centre has proposed to “essentially move towards simple tax" with 2 slabs—"standard and merit", with special rates applicable for only for select few items, the finance ministry said on Friday.

As per sources, the finance ministry has proposed to have two slab rates – 5% and 18% against the current four-slab structure. Majority of commodities of common man use will be under 5% (99 percent of items in 12% slab category will go to 5 percent) and 90 percent of items in 28 percent to be accommodated in 18% slab.

In a statement issued after Prime Minister Narendra Modi’s Independence day address where he announced that GST reforms which will lower tax burden substantially and benefit small industries will be implemented by Diwali, the ministry said that the central government has sent its proposal on GST rate rationalisation and reforms — specifically linked to structural reforms, rate rationalisation, and ease of living — to the Group of Ministers (GoM) constituted by the GST Council to examine this issue.

It said that the Centre’s proposal shared with the GoM rests on three pillars — structural reforms, rate rationalisation and ease of living. The proposal includes reduction of taxes on common man items and aspirational goods.

It added that the GST Council would in its next meeting — the date for which is yet to be announced — deliberate on the recommendations of the GoM and would strive to implement the bulk of the reforms within this financial year.

The GST Council, chaired by Finance minister Nirmala Sitharaman and comprising state ministers, is expected to meet in September to discuss the GoM proposal on rate rationalisation.

Currently, GST is a four-tier tax structure of 5, 12, 18 and 28 per cent, where essential items are either exempted or taxed at the lower tax bracket, while demerit and luxury items at the highest slab. Besides, a compensation cess is levied at varied rates on demerit and luxury items like pan masala and cars.

Source: News18