Think Change Forum (TCF), an independent, New Delhi–based think tank that brings together economists, financial leaders, and policymakers to debate bold ideas for India’s economic future, today released a white paper titled “GST 2.0: Two Slabs Today, One Rate Tomorrow”, authored by Prof. Nilanjan Banik, Professor at Mahindra University and Visiting Professor at ISB. The paper argues that the long-term success of GST lies in moving towards a single nationwide tax rate, and that GST 2.0 must act as the stepping stone by keeping to just two slabs – 5% and 18% – while capping the peak rate firmly at 18%, not 40%.

The report warns that creating a 40% slab, even for a narrow set of sin or luxury goods, will set a precedent for creeping expansion. Over time, more items will be drawn into this category, undermining the very purpose of simplification. Instead, TCF recommends pegging the peak indirect tax rate, including cesses, to 18%. This, it notes, will in one stroke remove anomalies such as inverted duty structures, cut down grey and illegal markets, reduce litigation and compliance burdens, and restore credibility to the GST system.

The paper underlines that moderation of taxes is not a revenue sacrifice but a growth strategy. By reducing distortions, India can drive higher consumption, expand compliance, and over time generate massive tax collections to fuel its ambition of becoming a developed economy.

Speaking at the launch, Ranganath T., Secretary General of Think Change Forum, said: “GST reform must go beyond symbolism. For it to be a genuine amendment for the people of India, the details matter. The goal should be a transparent, predictable tax system that keeps the peak rate at 18% and gradually converges to a single rate. Only then will GST truly become ‘One Nation, One Tax’.”

Speaking on the findings, Prof. Nilanjan Banik, author of the paper, added: “GST 2.0 must not repeat the mistakes of the past by creating more slabs or raising the peak rate. The real reform lies in simplification — two slabs today, and eventually one rate tomorrow. That is the path to higher compliance, fewer distortions, and sustainable revenue growth.”

Challenges that cannot be Ignored

The white paper identifies critical challenges that GST 2.0 must confront. First, India is navigating a period of intense global realignment, with tariff disputes and geopolitical pressures reshaping trade flows. At such a juncture, domestic tax policy must act as a buffer that supports growth, not one that compounds economic stress.

Second, the introduction of a 40 percent slab threatens to fuel the grey market, since black markets thrive under high ad valorem rates rather than fixed specific levies. Worse, it risks lifting India’s peak GST rate to an unsustainable level, creating a future temptation to widen the net to luxury and ultra-luxury goods.

Third, to avoid fiscal deficit, additional cesses will remain in force, making the case for a 40% slab redundant and distortionary—products like tobacco and SUVs are already taxed well beyond 40 percent. A high ad valorem base GST rate, with a cess structure would only magnify market distortions and fuel black market operations.

Six Key Recommendations

The white paper lays out six key recommendations to ensure GST 2.0 becomes a milestone reform that delivers true simplification and growth.

1. Lock GST into Three Instruments, Not Three Slabs: The white paper recommends anchoring GST to just two slabs—5% for essentials and 18% as the standard rate—supplemented by a transparent, product-specific cess for a narrow set of sin and luxury goods. This avoids the complexity of a 40% third slab while still allowing the government flexibility to tax demerit items without distorting the core structure of GST.

2. Cap the Peak Rate at 18%: To prevent India’s effective peak rate drifting upward, the paper calls for amending legislation to cap indirect taxes—including GST and cesses—at a maximum of 18%. This aligns India with global norms where most VAT/GST regimes stay around that level, and ensures moderation becomes a driver of growth, compliance, and long-term revenue buoyancy.

3. Publish a Cess Rulebook: Additional Cesses and surcharges on luxury and demerit goods are here to stay, but the absence of clear rules fuels opacity and uncertainty. The paper proposes a “Cess Rulebook” with guardrails on when and how cesses can be levied, indexed, or sunset. This would bring predictability to tax planning and restore credibility to India’s indirect tax regime.

4. Avoid Backdoor Revenue Devices: Measures like taxing on maximum retail price instead of transaction value, or exempting sectors such as insurance from GST without preserving input tax credit, distort GST’s design and add hidden costs. The paper argues these backdoor devices must be avoided, as they burden consumers and undermine the principle of a value-added tax.

5. Reduce Litigation through Clarity: GST has become a hotbed of disputes, with ambiguities over classification, input credits, and exemptions clogging courts. The white paper recommends binding sectoral classification notes and a rolling “Compendium of Clarifications” to provide certainty, reduce litigation, and lower compliance costs for businesses of all sizes.

6. Phase Reforms with Revenue Backfill for States: Finally, the paper stresses that reforms must protect state finances once the GST compensation cess sunsets in 2026. Phasing reforms alongside clear backfill plans will reassure states that simplification will not come at the cost of their revenues, making GST 2.0 both pro-growth and federal-friendly.