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Crisil has assessed that the GST rate changes will not put a heavy load on government finances. The government anticipates an annualised revenue loss of INR 48,000 crore, which is relatively small compared to last year's GST receipts of INR 10.6 lakh crore. The revised system simplifies tax slabs from four to two 5 per cent and 18 per cent while also bringing e-commerce delivery into the tax net. Since most revenue already comes from the 18 per cent slab, the changes are expected to have limited impact in the near term and may help expand the tax base in the medium run.
A recently published report by Crisil states that the rationalisation of Goods and Services Tax (GST) rates will not create a major fiscal strain for the government. According to the ratings agency, the government expects a short-term revenue loss of around INR 48,000 crore on an annualised basis. However, this figure looks moderate when compared with the total GST collection of INR 10.6 lakh crore recorded in the last financial year. Advertisement
The GST Council has recently approved the move to reduce the number of tax slabs from four to two, setting them at 5 per cent and 18 per cent. The revised rates will come into effect later this month and are expected to lower the cost of a wide range of products and services. Crisil pointed out that a simpler structure could bring more goods and services into the formal system, which in turn may support tax buoyancy in the medium term.
Before the change, nearly 70 to 75 per cent of the overall revenue was generated from the 18 per cent slab. The 12 per cent slab contributed only about 5 to 6 per cent, while the 28 per cent slab accounted for around 13 to 15 per cent. The firm noted that reducing tax on items that were previously under the 12 per cent category would not cause a significant drop in collections.
Several categories of services, such as mobile tariffs, will continue under the same tax rate. At the same time, new services like e-commerce delivery have now been brought into the GST network and will be taxed at 18 per cent. Crisil also observed that cheaper prices on certain mass consumption goods could increase disposable income, which may further push up demand and lead to higher tax collections over time.
The report further mentioned that the extent to which producers pass on the benefit of lower taxes to consumers will play an important role in shaping consumer spending behaviour in the months ahead.
Source PTI
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