GST Overhaul: Why Congress Calls It GST 1.5 And Demands A 'True' GST 2.0

The Goods and Services Tax (GST) regime has undergone its biggest reform since it was launched in 2017. The GST Council, a constitutional body that includes the Union Finance Minister and state representatives, has approved a major rate rationalisation. From September 22, 2025, GST will be simplified into two main slabs, 5% and 18%, replacing the earlier system of multiple rates.

The move aims to reduce tax disputes, cut compliance burdens for businesses, and lower costs for consumers on a wide range of goods and services. While the government has described it as a long-awaited step toward simplification, the Congress party has termed it "GST 1.5," arguing that the wait for a "true GST 2.0" is still not over.

What the GST council decided

On Wednesday evening, Finance Minister Nirmala Sitharaman announced a sweeping overhaul of the GST regime. Key decisions include:

Reduction of slabs: Existing slabs of 0%, 5%, 12%, 18%, 28% and special rates of 0.25%, 1.5%, 3% and 6% will be replaced with just two slabs: 5% and 18%.

Cheaper goods: Everyday-use items such as roti, paratha, hair oil, ice cream, and televisions will cost less.

Healthcare relief: Premiums on life and health insurance, including family floater policies, will now be exempt from GST, down from the earlier 18%.

Middle-class relief: Aspirational household items like air conditioners and washing machines will see reduced tax rates.

Boosting consumption: The government hopes these cuts will encourage higher spending and cushion the Indian economy against global shocks, including the recent US tariffs.

The changes will take effect from September 22, 2025, the first day of Navaratri.

Why the Congress calls it 'GST 1.5'

While the Congress has welcomed the rationalisation, it has described the reform as incomplete. Congress president Mallikarjun Kharge said the party has been demanding a simplified GST for nearly a decade.

लगभग एक दशक से, भारतीय राष्ट्रीय कांग्रेस, GST के सरलीकरण की माँग कर रही है। मोदी सरकार ने“One Nation, One Tax” को "One Nation, 9 Taxes" बना दिया था। जिसमें 0%, 5%, 12%, 18%, 28% के Tax Slabs शामिल थे और 0.25%, 1.5%, 3% व 6% की विशेष दरें थीं। कांग्रेस पार्टी ने अपने...

- Mallikarjun Kharge (@kharge) September 4, 2025

Kharge argued that the Modi government had turned the idea of "One Nation, One Tax" into "One Nation, Nine Taxes" by creating a complex system with multiple slabs and compliance burdens. According to him, the latest reform is only a halfway step and not the comprehensive GST 2.0 that the Congress has long advocated.

The Congress has demanded:

• Compensation to states for five years from 2024-25 as the base year, to offset revenue loss from reduced rates.
• Simplification of compliance rules to benefit MSMEs and small businesses.
• A rational tax system with fewer disputes, less misclassification, and no inverted duty structures.

Congress's historical role in GST

The Congress has also reminded the government of its own role in shaping GST. In 2005, the Congress-led UPA government formally announced GST in Parliament. In 2011, then Finance Minister Pranab Mukherjee introduced the GST Bill, which the BJP opposed at the time. Kharge noted that Prime Minister Narendra Modi, as Gujarat's Chief Minister, strongly opposed GST before later embracing it.

This, Congress leaders argue, shows a major U-turn by the BJP government.

Kharge's sharp criticism of the Modi government

Kharge accused the Modi government of celebrating record GST collections while ordinary citizens bore the burden. His key points included:

Farmers taxed: GST was imposed on at least 36 agricultural items.

Daily essentials taxed: Milk, curd, flour, grains, books, pencils, oxygen, hospital expenses, and insurance all came under GST.

Burden on the poor: 64% of GST revenue comes from the poor and middle class, while billionaires contribute just 3%.

Corporate tax cuts: Corporate tax rates were reduced from 30% to 22%.

Revenue growth: In the last five years, income tax collections rose by 240%, while GST collections grew by 177%.

Calling it a 'Gabbar Singh Tax', Kharge argued that GST in its earlier form was unfair and complicated.

Jairam Ramesh on GST 2.0 and federalism

Congress general secretary Jairam Ramesh emphasised that the real spirit of cooperative federalism has been ignored. He said states have long demanded compensation for revenue loss, but this remains unaddressed. Congress has consistently asked for a GST 2.0 that reduces rates, cuts taxes on mass consumption items and eases the burden on MSMEs.

He questioned why the Prime Minister had already announced GST changes in his Independence Day speech, reducing the GST Council to a formality. Ramesh described GST 1.0 as flawed from the beginning and said the government only recognised its failure after eight years. He warned that the impact of this 'GST 1.5' on private investment and MSMEs remains uncertain.

The Indian National Congress has for long been advocating for a GST 2.0 that reduces the number of rates, cuts the rates on a large number of items of mass consumption, minimises evasion, mis-classification, and disputes, does away with inverted duty structure (lower tax on...

- Jairam Ramesh (@Jairam_Ramesh) September 4, 2025

Chidambaram calls it a 'U-turn'

Senior Congress leader and former Finance Minister P. Chidambaram also reacted strongly. While welcoming the ratet cuts, he called them 'eight years too late'. Chidambaram noted:

• Economists and citizens had warned since 2017 that GST's design and rates were wrong.
• The Modi government ignored repeated pleas for rationalisation.
• Now, faced with sluggish growth, rising household debt and falling savings, the government was forced into a U-turn.

Chidambaram said the GST was supposed to be a "Good and Simple Tax" but instead became a "Growth Suppressing Tax."

The GST rationalisation and the reduction in rates on a range of goods and services are WELCOME but 8 years TOO LATEThe current design of GST and the rates prevailing until today ought not to have been introduced in the first placeWe have been crying hoarse for the last 8...

- P. Chidambaram (@PChidambaram_IN) September 3, 2025

The government, however, insists the new GST structure will provide major relief to consumers and encourage higher spending. Lower rates on everyday goods, aspirational appliances and exemptions on insurance premiums are expected to free up disposable income.

Officials believe that reduced tax incidence will also reduce disputes, improve compliance and attract higher private investment, especially in the manufacturing sector.

GST overhaul: Political and economic implications

The overhaul is not just an economic reform but also a political move. The timing, just ahead of state elections in Bihar, has drawn speculation that electoral concerns played a role. Economists are also closely watching whether the rationalisation will:

• Stimulate private consumption, which has been weak.
• Encourage private investment, especially in manufacturing.
• Simplify compliance for small businesses.
• Offset revenue losses for states.

While consumers will benefit immediately from lower prices, the longer-term economic effects remain to be seen.

GST 1.5 or beginning of GST 2.0?

The GST overhaul marks a major milestone, with significant relief for consumers and simplification for businesses. Yet, the Congress insists it is only a halfway reform, dubbing it GST 1.5. The demand for a true GST 2.0, one that further simplifies the system, ensures fair revenue distribution and eases burdens on MSMEs, continues. As the new system comes into force on September 22, both consumers and businesses will welcome cheaper goods and simpler tax rules. But whether this marks the beginning of a real transformation or remains a halfway measure will only become clear over the time.

(With inputs from agencies)

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