Modi JI’s Independence Day Speech for “Next-Generation” GST Reforms

New Delhi, August 15, 2025 – Prime Minister Narendra Modi, in his 79th Independence Day address on August 15, 2025, laid out an ambitious roadmap for the “next generation” Goods and Services Tax (GST) reforms, positioning them as a “Diwali gift” aimed at lowering the tax burden for ordinary citizens and businesses alike. The announcement marks a critical juncture for India’s indirect tax framework, which has been under active review after completing eight years in operation.

Speaking from the ramparts of the Red Fort on India’s 79th Independence Day, the Prime Minister signaled a determined push to rationalize the tax structure, simplify compliance for small businesses, and, most significantly, bring long-excluded items like petroleum and electricity under the GST umbrella. The proposals, dubbed ‘GST 2.0’ by observers, represent the most ambitious reform agenda for the landmark tax since its fraught rollout in 2017.

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The speech, while short on legislative specifics, was a clear statement of intent. It aimed to address the three most persistent criticisms of the current GST regime: its complex multi-slab structure, the cascading effect of taxes due to the exclusion of key sectors, and the burdensome compliance faced by Micro, Small, and Medium Enterprises (MSMEs).

The Core Announcements.

• The government will unveil next-generation GST reforms by Diwali to substantially reduce the tax burden on common-use items and deliver relief to MSMEs, with the intent of boosting consumption and growth.
• The reform is framed as an evolution after eight years of GST experience, following consultations with states and expert committees.
• A three-pillar blueprint was outlined: structural reforms, rate rationalisation, and ease of living/ease of doing business, with proposals to be considered by the GST Council ahead of the festive season.

The Core Proposals: What’s on the Table?

The Prime Minister outlined a three-pronged strategy to reshape the nation’s indirect tax system, moving it closer to the “One Nation, One Tax” ideal envisioned at its inception.

1. Rationalization of Tax Slabs.

At the heart of the proposed reform is a move to streamline the current five-tier structure (0%, 5%, 12%, 18%, 28%). While Mr. Modi did not commit to exact numbers, he spoke of a “simpler, three-rate structure” that would merge the 12% and 18% slabs into a single, median rate, likely around 15-16%. The 5% slab for essential goods and the 28% “sin tax” slab for luxury and demerit goods would remain, but the list of items in the highest bracket would be reviewed.

Economic Rationale: This is the holy grail for tax experts. A single median rate would eliminate classification disputes that have plagued businesses and clogged judicial channels. For example, is a packaged paratha subject to 5% or 18%? Such ambiguities would largely disappear. This move is expected to reduce compliance costs, minimize litigation, and improve the efficiency of the credit chain. A single standard rate would replace the existing 12% and 18% rates, simplifying the input tax credit (ITC) calculation for millions of businesses.

2. Inclusion of Petrol, Diesel, and Electricity.

Perhaps the most impactful proposal is the renewed push to bring petroleum products (petrol, diesel, ATF), natural gas, and electricity under the GST framework. These items are currently taxed by both the Centre (excise duty) and states (VAT), with combined levies often exceeding 100%. This exclusion has been a major impediment to a truly unified market, as it breaks the input tax credit chain for industries where fuel and power are major costs, such as logistics, aviation, and manufacturing.

Potential Impact: Bringing fuel under GST would be a game-changer. It would allow businesses to claim ITC on their fuel expenses, lowering operational costs and making Indian manufacturing more competitive. For consumers, it could lead to a significant reduction in fuel prices, although the final price would depend on the GST rate applied and the compensation mechanism worked out with the states, who currently earn a substantial portion of their revenue from fuel taxes.

3. AI-Driven Compliance and MSME Relief.

The third pillar of the proposed reform focuses on leveraging technology to create a “trust-based, friction-less” compliance system. The Prime Minister mentioned an upcoming AI-powered portal that would pre-populate returns, automate ITC matching, and use predictive analytics to identify high-risk taxpayers for audits, while offering a “green channel” for compliant businesses. A key component of this initiative is a simplified, one-page quarterly return form for MSMEs with a turnover below a certain threshold (rumored to be around ₹5 crore).

Goal: This initiative directly targets the pain points of small businesses, which have often struggled with the technical and financial burden of monthly filings. The goal is to improve the ease of doing business, reduce the influence of tax officials, and curb tax evasion through technology rather than intrusive enforcement.

Recent Developments in GST: A Season of Change.

• Structural Overhaul by Diwali: The government pledged sweeping GST reforms by October 2025 to rationalize tax rates and simplify compliance, framed as a “Diwali gift” intended to bring down the tax burden on the common citizen.
• Twin-Slab Regime: Proposals include reducing the current four-tax slab system to a streamlined two-tier structure, with 5% and 18% as the primary rates for most items, alongside a higher rate for “sin and luxury” goods.
• Sector-Specific Adjustments: Effective April 1, 2025, hospitality taxation shifted to actual transaction value (instead of declared tariff) and used cars moved to a harmonized 18% GST on margin.

Policy Through the GST Council.

• Focused Council Meetings: The 56th GST Council meeting (August 2025) is expected to decide on reforms, including the possible removal of the 12% slab, sectoral clarifications (fertilisers, textiles, gaming), and procedural simplifications.
• Amendments Since April 2025: Key compliance changes include multi-factor authentication (MFA) for the GST portal, tighter e-way bill controls, mandatory Input Service Distributor (ISD) registration for credit allocation, and lowered e-invoicing thresholds.

Pace of Reform: A Critical Assessment.

• Momentum Re-energized: After incremental, consensus-driven changes, the reform process has clearly accelerated with an executive push to implement major changes by Diwali 2025.
• Staged Implementation: While several measures began on April 1, 2025, the core rate rationalization is slated for Council approval by October 2025, balancing urgency with the need for broad state-level consensus.

Key Areas of Reform: Next-Generation GST Agenda.

1. Rate Rationalization.

• Fewer Slabs, Fairer Taxes: Policymakers are considering eliminating the 12% slab, moving most items into 5% or 18%, and reserving a higher rate for demerit goods.
• Impact: This rationalization aims to reduce consumer prices for everyday goods, fix inverted duty structures, and lower uncertainty for business planning.

2. Compliance Simplification.

• Digital-First Administration: Mandatory MFA, compulsory ISD for credit allocation, and standardized invoice series are designed to strengthen compliance integrity and reduce errors.
• E-Invoicing and E-Way Bills: Lower e-invoicing thresholds expand coverage; additional authentication layers enhance security for registrations and movement of goods.

3. Anti-Evasion and Technology Integration.

• Data Analytics and AI: Intensified use of analytics seeks to identify fraud patterns and improve revenue collection without increasing honest taxpayers’ burdens.
• Tighter E-Way Bill Controls: Strengthened authentication and validity norms are aimed at curbing fake invoicing and “missing trader” risks.

4. Addressing Sector-Specific Issues.

• Correcting Inverted Duty Structures: Textiles, footwear, and fertilizers remain priorities to resolve input-output tax rate mismatches that block credits and raise working capital costs.
• Legal and Tribunal Reforms: Streamlined appeals via GSTAT, decriminalization of minor offences, and clarity on procedural timelines seek to cut litigation and compliance costs.

5. Impact of Court Decisions and Government Pronouncements.

• Judicial Influence: Recent court rulings on assessment timelines, refunds, classification, and dispute resolution have prompted clarifications and procedural streamlining, particularly for exporters and MSMEs.

Industry and Experts Weigh In.

Initial reactions have been broadly positive, albeit with a note of caution. Industry bodies like the Confederation of Indian Industry (CII) and FICCI have hailed the proposals as “visionary” and “transformative.”

“Bringing fuel under GST and merging the 12% and 18% slabs have been our long-standing demands. If implemented correctly, this will be a massive booster shot for industrial competitiveness.”

– Rahul Mehta, President of the All India Manufacturers’ Association

Tax experts, while welcoming the direction, have pointed to the implementation challenges.

“The principles are sound. Rate rationalization and inclusion of petroleum are textbook reforms. However, the critical part is the consensus-building in the GST Council. The compensation formula for the states will be the make-or-break factor.”

– Dr. Ila Patnaik, Noted Economist

The opposition has been more skeptical. A spokesperson for the main opposition party called it a “pre-election jumla” (gimmick), questioning the government’s ability to forge the necessary political consensus and warning of a potential increase in taxes on other essential goods to compensate for revenue loss from fuel.

Economic Stakes and Distributional Impact.

• Household relief: Lower indirect tax incidence on mass-consumption goods could lift real disposable incomes and near-term consumption, particularly for middle-income households.
• MSME benefits: Fixing inverted duty structures and simplifying refunds can reduce working-capital strain; stable rates and fewer disputes can lower compliance costs.
• Revenue trade-offs: Consolidation and reductions will need to be balanced by base-broadening, anti-evasion measures, and growth-led buoyancy to safeguard Centre and state revenues.
• Competitiveness: Streamlined GST with fewer distortions can aid export competitiveness and encourage investment.

Political Context and Policy Signaling.

The “festive relief” framing aligns with the consumption cycle and underscores sensitivity to prices of daily-use items, while reinforcing MSMEs as a core constituency for job creation and growth. The government is also emphasising cooperative federalism via Council-driven decision-making, reflecting GST’s joint governance design and the need for state buy-in.

What Will Likely Change for Households and Businesses.

• Daily-use items: A broadened 5% slab may capture many goods currently at 12%, lowering shelf prices if cuts are passed through.
• Mid-range goods/services: Some items could move from 28% to 18%, easing prices for higher-ticket discretionary purchases.
• Luxury and sin goods: A consolidated high-rate category may maintain or increase incidence on demerit/luxury items to balance revenue and social policy objectives.
• Compliance: Expect simpler registration, returns, and refunds—especially beneficial for smaller firms and sectors affected by inverted duty structures.

Key Risks and What to Watch.

• Revenue neutrality: The design must balance lower rates with buoyancy through compliance improvements, base broadening, and growth.
• Council consensus and timing: Achieving agreement on slab consolidation and item classification is complex; the Diwali timeline is ambitious.
• Price pass-through: Consumer benefit depends on the speed and completeness of passing lower tax rates to MRPs amid inventory and input-credit dynamics.
• Transition disputes: Reclassification and structural changes can trigger new interpretive questions; clear notifications and guidance will be crucial.
• Macroeconomic interplay: Net tax cuts interact with inflation, growth, and deficits; careful calibration will be needed to maintain fiscal credibility.

Bottom Line.

Modi’s Independence Day signal of next-generation GST reforms by Diwali marks the most ambitious reset of the regime since 2017. The pivot towards fewer core slabs, targeted structural fixes, and compliance simplification aims to lower consumer prices and reduce MSME frictions. The reform’s success will hinge on GST Council consensus, preserving revenue buoyancy, and smooth execution so that rate cuts translate into real price relief and faster, more inclusive growth.

Disclaimer:

This article is intended for informational and analytical purposes only and does not constitute tax, legal, or investment advice. The details described reflect public statements and indicative policy directions as of the date of publication. Final GST rates, classifications, effective dates, and compliance procedures will depend on official notifications and GST Council decisions. Readers should consult qualified professionals and official government publications before making any business, tax, or financial decisions.

C.K. Gupta

Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.