Centre projects ₹47,000 cr net revenue loss from GST rate rationalisation

The Centre projected a net revenue loss of about ₹47,000 crore due to GST rate rationalisation, even as higher taxation on select goods was expected to partly offset the impact

The Centre has projected a net negative revenue impact of around ₹47,000 crore from the ongoing Goods and Services Tax (GST) rate rationalisation exercise, the Finance Ministry informed the Lok Sabha on Monday.

 

Replying to questions in Parliament, the ministry clarified that while the broader rationalisation was expected to lead to a gross revenue implication of about ₹93,300 crore, the shift of certain items from the 28 per cent slab to a higher 40 per cent tax bracket was estimated to generate additional revenue of nearly ₹45,570 crore.

 

“Based on consumption patterns and the entire value chain for the period 2023–24, items moved from the 28 per cent to the 40 per cent tax bracket are projected to account for additional revenue of approximately ₹45,570 crore,” the ministry said.

 

It added that, taken together, these figures would result in a net negative impact of about ₹47,700 crore. However, the ministry cautioned that these projections were not definitive.

 

“Tax collection is not static and there is buoyancy. Moreover, lower rates are likely to lead to improved compliance and fewer disputes,” it said.

 

GST rate rationalisation refers to the ongoing process of reviewing and simplifying the existing tax slab structure under the GST regime.

 

The ministry also said that there was no proposal at present to constitute a group of ministers under the GST Council to specifically address initial revenue losses faced by states due to the rate rationalisation measures.

 

Kerala had flagged higher revenue impact

 

Responding to concerns raised about the impact on states, the Finance Ministry referred to discussions during the 56th meeting of the GST Council, where Kerala flagged the possibility of higher revenue losses.

 

According to the ministry, the Kerala Finance Minister had observed that the state’s consumption pattern was such that a large share of commonly used items attracted higher GST rates, which could result in relatively greater revenue loss for the state following rationalisation.

 

“It was further stated that the State of Kerala had undertaken its own estimates of the potential revenue loss arising on account of GST rate rationalisation by focusing on four sectors - automobiles, insurance, cement and electronics,” the ministry said.

 

Based on these estimates, the state projected an annual revenue loss of around ₹2,500 crore from these sectors alone.

 

“As per the state’s assessment, the total annual revenue loss for Kerala is likely to exceed ₹8,000 crore,” the ministry said.

 

The Centre clarified that the overall impact of GST rate rationalisation would need to be assessed over time, factoring in changes in consumption behaviour, compliance levels and revenue buoyancy.