G, S, T, – 2.0 will be a growth engine that benefits the people – the cost will decrease
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The consumption growth of Rs 5.5 lakh crore will lead to an additional Rs 52,000 crore increase in GST revenue in FY26, which will easily offset the estimated revenue loss of Rs 45,000 crore due to GST 2.0 reforms, a report said on Wednesday.
GST 2.0 will lead to increased consumption, increased tax revenue and reduced inflation. The SBI Research report said GST 2.0 may lead to increased consumption, resulting in increased tax revenue, reduced inflation and higher growth rate. “The average revenue loss may be around Rs 85,000 crore.
For FY26 it may be Rs 45,000 crore. Overall revenue loss is likely to be reduced as harmful items have been shifted from the 28 per cent slab to the 40 per cent slab,” the report said.
Despite a revenue loss of an average of Rs 85,000 crore from the GST 2.0 regime, consumption is estimated to increase by Rs 1.98 lakh crore. With tax cuts, the total impact is equivalent to an additional Rs 5.31 lakh crore increase in consumption expenditure in the economy, equivalent to 1.6 per cent of GDP.
Analysts had earlier expressed concern that the government’s fiscal estimates could be compromised if borrowing is increased to compensate for the revenue loss from the GST tax cut.
However, SBI Research refuted this doubt, saying, “The fiscal deficit target for FY- 26 is unlikely to be exceeded. Hence, the debt market fears appear to be somewhat exaggerated.”
On the inflation front, SBI Research said the GST rate on essential items, including food and clothing, is expected to be reduced from 12 per cent to 5 per cent. This change could reduce consumer price index (CPI) inflation in this category by 10-15 basis points, including a 60 per cent impact on food items.
Rationalising GST rates for services will reduce consumer price index (CPI) inflation for other goods and services by 5-10 basis points, including a 25 per cent impact.
Overall, consumer price index (CPI) inflation is expected to come down by 20 to 25 basis points, according to the report.In the last four years, the Centre has collected Rs 2.26 lakh crore more than the estimated tax revenue on an average.
Commodities will be divided into two categories
Since there will be only two tax slabs under the new system, commodities will be divided into both ‘standard’ and ‘essential’ categories. Up to 40 percent tax will be levied on selected things like pan masala, tobacco and online gaming. SBI’s research states that the effective weighted average GST rate has been continuously decreasing since 2017. In this way, it has declined from 14.4 percent to 11.6 percent by September 2019 and now with the revision in rates, this figure can further decrease to 9.5 percent.
Inflation may come down
Even though GST reforms may harm the revenue, despite this, GDP is expected to increase by 0.6 percent. The country’s economy will get support from strong consumption of consumer goods. The report also said that there is no possibility of inflation increasing due to this step of the government because common consumer goods will become cheaper. Under the new system, Consumer Price Index (CPI) inflation may decrease by 20-25 basis points. The finance ministers of the states will discuss this proposal of the government on Wednesday and Thursday. If consensus is reached, then it will be placed in the GST Council meeting next month.
The consumption growth of Rs 5.5 lakh crore will lead to an additional Rs 52,000 crore increase in GST revenue in FY26, which will easily offset the estimated revenue loss of Rs 45,000 crore due to GST 2.0 reforms, a report said on Wednesday.
GST 2.0 will lead to increased consumption, increased tax revenue and reduced inflation. The SBI Research report said GST 2.0 may lead to increased consumption, resulting in increased tax revenue, reduced inflation and higher growth rate. “The average revenue loss may be around Rs 85,000 crore.
For FY26 it may be Rs 45,000 crore. Overall revenue loss is likely to be reduced as harmful items have been shifted from the 28 per cent slab to the 40 per cent slab,” the report said.
Despite a revenue loss of an average of Rs 85,000 crore from the GST 2.0 regime, consumption is estimated to increase by Rs 1.98 lakh crore. With tax cuts, the total impact is equivalent to an additional Rs 5.31 lakh crore increase in consumption expenditure in the economy, equivalent to 1.6 per cent of GDP.
Analysts had earlier expressed concern that the government’s fiscal estimates could be compromised if borrowing is increased to compensate for the revenue loss from the GST tax cut.
However, SBI Research refuted this doubt, saying, “The fiscal deficit target for FY- 26 is unlikely to be exceeded. Hence, the debt market fears appear to be somewhat exaggerated.”
On the inflation front, SBI Research said the GST rate on essential items, including food and clothing, is expected to be reduced from 12 per cent to 5 per cent. This change could reduce consumer price index (CPI) inflation in this category by 10-15 basis points, including a 60 per cent impact on food items.
Rationalising GST rates for services will reduce consumer price index (CPI) inflation for other goods and services by 5-10 basis points, including a 25 per cent impact.
Overall, consumer price index (CPI) inflation is expected to come down by 20 to 25 basis points, according to the report.In the last four years, the Centre has collected Rs 2.26 lakh crore more than the estimated tax revenue on an average.
Commodities will be divided into two categories
Since there will be only two tax slabs under the new system, commodities will be divided into both ‘standard’ and ‘essential’ categories. Up to 40 percent tax will be levied on selected things like pan masala, tobacco and online gaming. SBI’s research states that the effective weighted average GST rate has been continuously decreasing since 2017. In this way, it has declined from 14.4 percent to 11.6 percent by September 2019 and now with the revision in rates, this figure can further decrease to 9.5 percent.
Inflation may come down
Even though GST reforms may harm the revenue, despite this, GDP is expected to increase by 0.6 percent. The country’s economy will get support from strong consumption of consumer goods. The report also said that there is no possibility of inflation increasing due to this step of the government because common consumer goods will become cheaper. Under the new system, Consumer Price Index (CPI) inflation may decrease by 20-25 basis points. The finance ministers of the states will discuss this proposal of the government on Wednesday and Thursday. If consensus is reached, then it will be placed in the GST Council meeting next month.
