The Union Government has acknowledged that the ongoing Goods and Services Tax (GST) rate rationalisation exercise could result in a significant net revenue loss for States, even after accounting for additional collections from higher tax slabs.
Responding to a starred question in the Lok Sabha, Finance Minister Nirmala Sitharaman clarified that no proposal is currently under consideration to constitute a new Group of Ministers (GoM) to address the initial revenue losses faced by States due to GST rate rationalisation
Kerala Raises Concern Over Disproportionate Revenue Loss
During the 56th meeting of the GST Council, the Finance Minister of Kerala highlighted that the State's consumption-heavy profile, where a large share of goods attract higher GST rates, makes it more vulnerable to revenue erosion following rate rationalisation.
Kerala conducted its own assessment focusing on automobiles, insurance, cement, and electronics. Based on these estimates, the State projected an annual revenue loss of around Rs 2,500 crore from these sectors alone, while the overall loss could exceed Rs 8,000 crore per year
Centre's Revenue Impact Estimates
According to data analysed by the Centre using 2023-24 consumption patterns and the full value chain, goods shifted from the 28% GST slab to the newly introduced 40% slab are expected to generate additional revenue of approximately Rs 45,570 crore.
However, the broader GST rate rationalisation exercise is projected to result in a gross negative revenue impact of about Rs 93,300 crore, leading to a net revenue loss of nearly Rs 47,700 crore when both factors are combined
Government Cautions Against Static Projections
The Finance Ministry stressed that these figures should not be viewed as final, as GST collections are dynamic and influenced by economic growth and compliance behaviour. The government noted that lower tax rates may improve compliance, reduce disputes, and enhance tax buoyancy over time, potentially offsetting part of the revenue loss in the medium term.
Official copy of the notification has been attached
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