Will GST reforms impose a significant fiscal burden on the government?
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Synopsis
Discover how the recent GST reforms may not heavily burden the government's finances. A Crisil report reveals insights on tax collection, consumption, and economic conditions that could support revenue growth despite short-term losses.
Key Takeaways
- The GST rationalisation is projected to have a minimal fiscal impact.
- Revenue loss is estimated at Rs 48,000 crore annually in the short term.
- Tax collection from the 18% slab constitutes a major portion of GST revenue.
- Changes in tax rates on various items may not significantly affect overall collections.
- Macro conditions like low inflation may boost consumption.
New Delhi, Sep 19 (NationPress) A recent report by Crisil indicates that the latest Goods and Services Tax (GST) rationalisation will not impose a major fiscal burden on the government. The government anticipates a net loss of Rs 48,000 crore annually in revenue in the short term due to these GST reforms.
In the previous fiscal year, total GST collections stood at Rs 10.6 lakh crore, making this projected loss seem relatively minor, according to the Crisil Ratings analysis.
The report highlights that the recalibration of tax rates is unlikely to exert significant pressure on government revenue. It notes, "As of fiscal 2024, the majority (70-75 percent) of GST revenue was generated from the 18 percent slab. Only 5-6 percent came from the 12 percent slab, and 13-15 percent from the 28 percent slab."
Furthermore, reducing tax rates on items currently taxed at 12 percent may not lead to considerable revenue loss.
Tax rates on various rapidly growing services, including mobile tariffs, remain unchanged. New services such as e-commerce delivery now fall under the GST umbrella and are taxed at 18 percent. Additionally, an increase in disposable incomes due to benefits on mass consumption items could enhance demand and tax collections, as pointed out by the report.
The report also suggests that differentiated tax rates between lower- and higher-value items can help lessen the fiscal impact. For example, rates on higher-value clothing and two-wheelers were increased while lowering taxes on lower-value items.
It states, "Premium demand from upper-income segments could remain stable, supporting revenue." Moreover, simplifying GST from four to two slabs could gradually include more goods and services in the formal tax net, fostering tax buoyancy over the medium term.
The impact on consumption will depend on how quickly and thoroughly the GST cuts are passed on to consumer prices. Tax reductions on essential goods can boost purchasing power, leading to a broader uptick in consumption over time, as mentioned in the report.
Other macroeconomic factors, such as low inflation, reduced borrowing costs, the government’s income-tax relief announced at the beginning of this year, and a robust agricultural sector, also present favorable conditions for consumption this fiscal year.
The new GST rates are set to take effect on September 22, influencing the latter half of this fiscal year.
Point of View
I believe that while the GST reforms indicate a short-term revenue loss, the long-term benefits, including increased tax compliance and consumer spending, could outweigh initial burdens. It is essential to monitor these developments closely to understand their full impact on our economy.
NationPress
20/09/2025
Frequently Asked Questions
What is the expected revenue loss from GST reforms?
The government has projected a net revenue loss of Rs 48,000 crore annually in the short term due to GST reforms.
How will GST changes affect consumer prices?
The impact on consumer prices will depend on how quickly the GST cuts are passed on to the market, which could boost purchasing power.
When will the new GST rates take effect?
The new GST rates are scheduled to come into force on September 22, influencing the second half of this fiscal year.
What sectors are affected by the GST reforms?
The reforms affect various sectors, including e-commerce delivery and mobile tariff charges, but keep rates unchanged on several fast-growing services.
What are the macroeconomic factors supporting consumption?
Factors such as low inflation, easing borrowing costs, and government income-tax relief are expected to support consumption this fiscal year.
