By Amit Mittal

Since its launch in 2017, the Goods and Services Tax (GST) has completely revolutionised India's indirect tax landscape. Roll-up of a host of taxes into one singular regime, GST aimed at making compliance easier, curbing tax cascading, and helping build a common national market. And now, nearly eight years later, the sequel, commonly referred to as GST 2.0, is here, with the potential to simplify the tax load further, enhance liquidity, and unlock new opportunities, mainly for Micro, Small, and Medium Enterprises (MSMEs) that are the backbone of Indian manufacturing.

Rationalising Tax Slabs: A New Direction for GST

The most eagerly awaited element of GST 2.0 is the rationalisation of tax slabs. The GST regime now has four major slabs: 5 per cent, 12 per cent, 18 per cent, and 28 per cent. But now policymakers are thinking of the structure being two rates, mainly 5 per cent and 18 per cent, with a standalone 40 per cent rate for luxury products.

According to this new proposal, 99 per cent of what is taxed at 12 per cent now would go to 5 per cent, reducing the burden on common items significantly. Likewise, nearly 90 per cent of the goods in the 28 per cent slab would move to 18 per cent, and mid-level and capital goods will be inexpensive for the manufacturer as well as the consumer.

Sustainable Businesses and GST 2.0

One of the less-discussed benefits of GST reform is that it can help speed up India's transition to sustainable businesses. By reducing the cost of sustainable goods like recyclable packaging, green materials, or energy-efficient products through lower GST rates, MSMEs can become aligned with not just consumer preferences but India's own agenda of green growth.

A rationalised tax regime would put even terms for green products, where MSMEs will invest in sustainability-driven innovation. 

GST 2.0 and Its Effect on MSMEs