Easing the burden

The BJP government’s recent revision of the Goods and Services Tax (GST), which came into effect from September 22, represents one of the more consequential tweaks to the indirect tax regime in recent years. The decision, though belated is good news on the eve of durga and navratri pujas as the multi-tiered rate structure is now a simpler two-slab system that cuts levies on a slew of everyday and aspirational goods. The relief will be felt by middle class households, small entrepreneurs and the wider economy alike. The reform is a pragmatic simplification of the erstwhile four-slab GST now narrowed to two principal rates- a 5 percent “merit” rate and an 18 percent “standard” rate. This reduces compliance headaches for small businesses and lowers administrative costs, while making prices more predictable for consumers. The immediate result is cheaper essentials and a tangible increase in purchasing power for India’s expanding middle class. The list of beneficiaries is wide and socially significant- medicines have seen a steep reduction – items earlier taxed at 12 percent are now at 5 percent, Also an important set of 36 critical, life saving drugs used in cancer, rare genetic disorders and cardiovascular care have been fully exempted. Medical devices and diagnostic kits have also been moved to the 5 percent bracket, a pragmatic measure that improves access to health care and diagnostics at a time when affordability can be a matter of life and death. Household staples and mass consumption items, such as- ghee, paneer, butter, popular snacks joined the lower slab, as have aspirational durable goods such as televisions, air conditioners and washing machines. Reduction of tax on cement from 28 to 18 percent will lower construction costs and could nudge housing activity. Automobiles have been re tiered- larger cars remain in the 28 percent band, while smaller cars move to 18 percent, aligning tax treatment with social and environmental priorities. Even everyday personal care items- hair oil, soaps, shampoos, toothpaste, talcum powders and shaving products- have become markedly cheaper, with many moved to the 5 percent rate from 12 or 18 percent. Beyond headline price cuts, lowering GST on consumer goods injects demand into the economy by raising real incomes, especially for middle income households who tend to spend a larger share of additional income. For small entrepreneurs, fewer tax bands and lower compliance burdens mean reduced costs and better competitiveness. The cumulative effect should be a modest but meaningful lift in consumption, production, and job creation- an outcome the economy sorely needs as global headwinds persist. The government’s larger narrative around tax reform also matters. Complementary measures-like proposals to rationalize income tax rates and the promise of a new Income Tax Act-aim to simplify the direct tax code and enhance voluntary compliance. Reducing rates and streamlining procedures can shrink the space for tax evasion by making legal compliance more attractive than avoidance, thereby improving revenue buoyancy without disproportionately squeezing taxpayers. No reform is costless. The fiscal impact must be monitored and offset by efficiency gains in administration and improved compliance. Yet, by prioritizing affordability and ease of doing business, the GST revision strikes a sensible balance between equity and growth. For ordinary consumers, small business owners and the broader economy, it is a welcome reset – one that lowers daily costs today and, if managed prudently, helps lay the groundwork for steadier growth.