The Next-Generation GST reforms of 2025, particularly the shift to a two-slab structure, represent a balance between revenue adequacy and equity. Critically examine.

The 56th GST Council meeting (3 September 2025) collapsed the four-tier 5-12-18-28% structure into a two-slab regime of 5% and 18%, with a 40% special rate on sin and luxury goods, effective 22 September 2025 [3]. Whether this simultaneously secures the exchequer and protects the consumer deserves close scrutiny.

How the reform advances equity

• Merit-rate migration: staple packaged foods, medicines and labour-intensive goods moved to 5%; sand lime bricks fell from 12% to 5%, aiding affordable housing [3].
• Progressivity through the 40% rate: pan masala, tobacco, aerated drinks, high-end cars and yachts absorb the burden, offsetting the regressive character of indirect taxes [1].
• Compliance relief for MSMEs: fewer slabs mean fewer classification disputes — a long-standing demand of small trade [1].

How it safeguards revenue adequacy

• Buoyancy base: collections rose from ₹13.76 lakh crore (2021-22) to about ₹22.27 lakh crore (2025-26), with FY 2024-25's record ₹22.08 lakh crore growing 9.4% [1][2].
• Base widening: registered taxpayers expanded from 66.5 lakh (2017) to 1.65 crore (May 2026), formalising the economy [1].
• Rate correction where warranted: coal moved 5% → 18% with the compensation cess withdrawn, protecting the tax base [3].

Unresolved concerns

• Shifting items from 12% to 5% and 28% to 18% implies near-term revenue sacrifice for States, whose compensation guarantee lapsed in 2022.
• A single 18% standard rate is inherently regressive for middle-income consumption; the inverted duty structure and refund delays persist.
• Since Mohit Minerals (2022) held Council recommendations non-binding, uniform State adoption rests on political consensus rather than law.

The reform is therefore a calibrated, not costless, balance — equity gains are immediate and visible, while revenue adequacy depends on consumption-led buoyancy materialising. Institutionalising a transparent revenue-sharing mechanism and completing return simplification would let GST fulfil its promise of a common market advancing Article 246A's cooperative-federal design.