- The proposed GST rate rationalisation is expected to result in a manageable revenue loss of Rs 1.1 trillion annually or 0.3% of GDP.
- For FY 2026, a shortfall of Rs 430 billion or 0.12% of GDP is anticipated, which could be offset by surplus cess collections and higher-than-budgeted RBI dividend transfers.
- A GST cut is seen as more effective in boosting consumption than personal or corporate tax cuts.
- The GST multiplier is higher than those for personal income and corporate taxes.
- Prime Minister Modi announced upcoming GST reforms to benefit consumers, small industries, and MSMEs.
- The government plans a simplified two-tier GST structure focusing on structural reforms, rate rationalisation, and ease of living.
- The proposal includes scrapping the 12% and 28% slabs, retaining only 5% and 18% rates.
- 99% of items in the 12% slab may move to 5%, and 90% of items in the 28% slab may move to 18%.
- A GST Council meeting is expected to review the proposal.
- Luxury and sin goods will be taxed at a special slab rate of 40%.
- Sectors like processed foods, garments, and construction materials may benefit from the removal of the 12% slab.
- The compensation cess will end before March 2026, creating fiscal room for GST rate alignment.
- Lowering GST rates could have a deflationary effect, cooling inflation and allowing for monetary policy easing.
- The repo rate could settle in the 5.0 to 5.25% range, with potential for further cuts during FY26.
Source: timesofindia.indiatimes.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
