Examine whether the two-slab GST structure achieves both equity and revenue sufficiency.

The 56th GST Council meeting (3 September 2025) cut the GST structure to two rates, 5% (merit) and 18% (standard), plus a 40% de-merit rate on sin and luxury goods, effective 22 September 2025 [1]. The structure clearly advances equity. Revenue sufficiency holds nationally but remains uncertain for States.

Equity: gains

• Essentials relieved: nil GST on UHT milk, pre-packaged paneer and Indian breads [3]; 33 life-saving drugs moved from 12% to nil [1].
• Mass-consumption goods such as soap, toothpaste, hair oil and bicycles cut to 5%, easing the burden on poorer households, who spend more of their income on them [1].
• Progressive top end: 40% on pan masala, tobacco, aerated drinks, high-end cars, yachts and private aircraft [1].
• MSME fairness: automated registration within 3 working days for low-risk applicants and 90% provisional refunds in inverted duty cases [2].

Equity: limits

• GST remains a consumption tax: rich and poor pay the same rate on the same item, so it stays regressive in nature.
• Cuts from 28% to 18% on ACs, TVs and small cars [1] mainly benefit better-off consumers.

Revenue sufficiency: strengths

• The Revenue Secretary estimated the loss at about ₹48,000 crore, possibly lower as consumption rises [4].
• Collections have since stayed steady, leaving room for taxpayer-friendly reform [5].
• Fewer rates mean fewer classification disputes, which supports compliance and widens the base.

Revenue sufficiency: concerns

• The five-year compensation period has ended [5], so a State that loses revenue now bears the loss alone.
• Steady national totals can hide shortfalls in consuming States that depend heavily on GST.
• Faster refunds and easier input tax credit, though desirable, reduce short-run cash inflows.

Overall, the two-slab structure delivers on equity and simplicity, while revenue sufficiency is secure in aggregate but not yet for every State. The way forward is periodic State-wise revenue monitoring by the Council and deeper compliance reform, the focus of its 57th meeting [5]. Together these would let GST balance fairness with fiscal strength in the spirit of cooperative fiscal federalism.