NEW DELHI, Sept 6: The State Bank of India (SBI) in its latest research report said reforms in Goods & Services Tax (GST) through reduction in rates will cause a minimal revenue loss of ₹3,700 crores. The government estimates the net fiscal impact of GST rates rationalisation will be ₹48,000 crore on an annualised basis.
According to the report, given the growth and consumption boost, the minimal revenue loss is estimated at ₹3,700 crore and will have no impact on the fiscal deficit. The GST Council has replaced the current four-tier structure with a two-tier one, with a standard rate of 18% and five per cent, and de-merit rate of 40% on selected few goods and services.
The report said the GST rate rationalisation will largely have a positive impact on the banking sector owing to meaningful cost efficiencies. “GST rate rationalisation has also brought down the effective weighted average rate from 14.4% at the time of inception in 2017, which is expected to come down to 9.5%,” the report said.
“Since the GST rate rationalisation of essential items (around 295) has declined from 12% to five per cent or zero, the CPI inflation in the category may also come down by 25 basis points to 30 basis points in the current financial year,” the report said. “Overall, the CPI inflation may be moderated in the range of 65 basis points to 75 basis points over 2026-27,” according to the report.
Meanwhile, in a gesture underscoring the spirit of cooperative federalism, Union Finance Minister Nirmala Sitharaman has written to Finance Ministers of all States, expressing gratitude for their support and active role in helping the Centre in implementing the landmark GST rationalisation measure.
Ms Sitharaman said States made their view on the proposal to rejig tax rates but ultimately agreed that it was for the benefit of the common man, an argument that helped reach a unanimous decision at the GST Council meeting earlier this week.
“Yesterday, I have written a letter to each Finance Minister thanking them, saying, you can have any number of intense discussion and argument, but finally, the Council rose to the occasion and gave relief to the people of India, to all people of India. And, I am grateful for that gesture. So, I wrote that letter,” she said.
She said the work at the Council was truly “remarkable.” Despite apprehensions over loss of revenue from classifying most products into categories: 5% for common use goods and 18% for everything else, and doing away with 12% and 28% slabs, the GST Council took a unanimous decision for the GST rejig. The panel was to meet for two days starting September 3 to discuss the proposal made by the Centre but ended up approving it on the very first day after a marathon daylong meeting.
“So the sense of the house was, this is a proposal which is going to undoubtedly benefit the common man. There is no point in standing against it… Ultimately everybody came together for a good cause, and I’m truly very grateful,” Ms Sitharaman said. The Minister said States were always in favour of rate reduction and their only concern was with regard to their revenue implications post-tax cuts.
“I even appealed to them, saying, for the sake of the people of India, Please. It’s not just the States. It’s even the Centre that is going to get affected by the reduction. But we’ll make up for it because once the rates come down, people are going to come out to buy, and that will take care of it [revenue impact]. That’s how consensus was arrived at,” she said.
Ms Sitharaman, speaking at a press conference following the GST Council meeting, had expressed her gratitude to the States for their cooperation and collaborative efforts in implementing one of India’s most significant tax reforms.
(Manas Dasgupta)