GST Reform 2.0: PM Modi’s ‘Double Diwali’ gift, cutting Rs 1.8 billion in revenue, states bear the brunt
GST 2.0: Prime Minister Narendra Modi promised a simplified GST tax rate that could be launched earlier than expected, with the GST council scheduled to meet from September 3 to 4.
Sources say Ganpati Visarjan itself may be effective weeks before Diwali.
Prime Minister Modi declared in his address on Independence Day on August 15: “This Diwali Festival, I will make a double Diwali Festival for you.
Add Zee business as your preferred source
The proposed GST rate rationalization is intended to replace the existing 5%, 12%, 18% and 28% tablets, with only 2% and 18%.
Finance Minister Nirmala Sitharaman has introduced the change to the state-level minister (GOM), noting that the changes will “benefit ordinary people, farmers, middle class and small businesses while making GST more transparent and growth-oriented.”
Please read also:Mererier from September 3-4: The earlier the GST council meeting; Sources say “double lights” may occur in Ganesh Visarjan itself
Why this Diwali may feel “discount season” for consumers
According to Ambit Capital’s latest report “GST Reform: Better Late than None”, nearly 99% of items may drop to 5% in 12% of tablets, while 90% of goods currently taxed will shift the 28% rate to 18%.
Some examples of price impact under the proposed structure:
Large items such as air conditioning, TVs and cement that currently attract 28% GST may be cheaper under the new plan as their tax rate will drop to 18%.
Since about 15% of household spending goes to goods within the 12% and 28% tax range, low-income households (they spend about 25% on 5% to 12% of taxed goods) and wealthier households (they spend 5% to 6% on high-tax luxury goods).
According to Ambit Capital’s report, GST cuts could increase consumer spending by 0.8-18 crore, which in turn increased India’s GDP growth by 0.2% to 0.5 percentage points, from 6.3% to 6.5-6.8%.
Please read also:GST reform: After eliminating 12% and 28% of tablets, it may become cheaper and more expensive; internal list
Income Limits: Why the State Feels It More Than Just a Center
The other side is insufficient income. The report warns that the centre and the state jointly may lose between Rs 0.7 to 18 crore per year due to the rationalization of GST interest rates, converting to 3% to 8% of GST revenues from budgets.
In the budget, the Alliance Government expects GST collection to grow by 10.9% in 2025-26 in the 2024-25 revised estimate.
Please read also:Prime Minister Modi’s “Diwali Gift” GST Reform; Should Health and Life Insurance be exempted?
The report proposes two situations/programs:
Plan 1: If all 28% of goods are transferred to 18%, the total GST revenue fell by Rs 1.8 lakh (-8%).
Plan 2: If about 28% of the projects reduce the loss of 40% to Rs 77 crore (-3%).
While centers and states share GST on average, states are expected to bear two-thirds of the total losses. According to the report, the center lost Rs 550 crore per Rs 1 billion in revenue gap – but the state lost Rs 550 crore directly and Rs 16,500 crore from tax decentralization, as the center had only 33% of the total tax revenue.
“States will eventually bear 2/3 of their loss of income due to lower interest rates,” the Ambit Capital report said.
The states such as Maharashtra, Haryana, Karnataka, Kerala and Bihar will be hit hardest. The report notes that it has faced a slowdown in GST growth – 3.9% of 17 major states in Q1 – several governments have hiked alcohol taxes and property taxes to block the gap.
The report further warns that unless the center cuts capital expenditure, the fiscal deficit could expand GDP by 0.1-0.23%, which will allow growth to grow.
