The government is expected to lose 48 thousand crore rupees in revenue from GST reform.
The announcements that were to be made under the GST reform have been done. Middle and lower middle class have got a big relief by reducing taxes on goods used in common life. This GST reform is expected to promote domestic demand. But it will have to pay the price as revenue loss. That too at a time when the tax collection of the government is already being seen under pressure. Let us try to understand how much will the government’s bookkeeping deteriorate with this GST gift of the government? Also, how important is this GST reform for the country?
How important GST reform?
This GST reform is very important. Most of the shortcomings of GST 1.0 have been removed. The number of tax slabs has been reduced from four to two (5% and 18%), of which 40% of the tax is reserved for sin products. The important thing is that the goods of common consumption will now be taxed at low rates, which will reduce the burden on the houses and pave the way of strong domestic demand. The GST Council has also carried forward structural reforms to improve trade ease – simplifying registration, resolving classification disputes and removing the reverse fee structure. The new rates will be applicable from September 22, which is just before the festival season.
How much will be damaged to revenue
The government estimates that on the basis of the consumption pattern of 2023-24, the annual revenue will be reduced by Rs 48,000 crore. Revenue Secretary Arvind Srivastava said that the net revenue is expected to reduce about Rs 48,000 crore. Srivastava quoted IANS as saying that on the basis of the consumption pattern of 2023-24, NET revenue is expected to be reduced by about Rs 48,000 crore. For this year, we had collected different figures. To better understand this process, it is important to understand that focusing only one number cannot reveal the entire picture.
Is this a large amount of loss?
Officials say that this loss amount is not special. It can be controlled by cutting extravagance. Officials also argue that this loss will be compensated to a large extent of better consumption under GST 2.0 and better compliance in the medium period.
Is gross tax collection for the government a matter of concern?
At present, the gross tax collection for the government is being considered a matter of great concern. In the first four months of this financial year, both direct and indirect tax collections have been less than the budget estimate. Direct tax collections are 4 per cent less than the estimated 12 per cent increase in the budget, which are weak due to sluggish business environment and low income tax slab. Indirect tax is also behind budget estimates, which shows weak nominal GDP growth. Economists say that to meet the revenue estimates, the tax bounce must be almost double the estimates of the government – which is a difficult task.
What is the government doing to fix it?
GST rate cuts are part of the widespread effort to revive growth. With earlier income tax cuttings, this step is designed to encourage consumption, revive private investment when capacity increases and speed up GDP growth. Strong growth will eventually increase revenue, which will help in controlling the fiscal deficit. Nevertheless, the demand will take some time to increase. By linking the GST cut with the festive season, the government is expecting to reduce this difference.
Will the government miss the target of fiscal deficit this year?
The Narendra Modi government’s record of fiscal consolidation has been strong and the possibility of compromising this reputation is less. For FY 26, it has targeted a rigorous fiscal deficit of 4.4 per cent of GDP. Economists say that even if the revenue remains low, the central government can cut the prescribed capex in the budget or cut non-essential expenses so that they can remain on the target. The income from the Reserve Bank of India and Public Sector Enterprises will also help with the income from IDBI Bank and the Life Insurance Corporation of India Limited (LIC).