Proposed GST overhaul to cost govt over Rs 1L crore: Experts

The Goods and Services Tax (GST) reform announced by PM Narendra Modi would cost the government over Rs 1 lakh crore annually, multiple economists said.

The proposed overhaul of the GST, through the removal of the 12 per cent and 28 per cent slabs, with likely convergence into 5 per cent and 18 per cent standard rate is expected to significantly impact the revenue of the Central and state governments.

According to Gaura Sen Gupta, chief economist at IDFC First Bank Economics Research, the revenue loss to the Central and state governments is estimated at Rs 1.8 lakh crore (0.5 per cent of GDP) for 12 months. “The revenue loss to Centre (net of transfer to states) is estimated at 0.15 per cent of GDP and revenue loss to states is estimated at 0.36 per cent of GDP. The relatively lower burden on Centre is because state governments get not only SGST but also 41 per cent of CGST,” Gupta said.

Currently, the majority of GST revenue is collected at the 18 per cent slab at 70 per cent to 75 per cent share. The slabs which are being removed account for a smaller share in overall revenue — 12 per cent slab accounts for 6-8 per cent of revenue and 28 per cent slab accounts for 13 per cent to 15 per cent of revenue. The government proposed two slabs of 5 per cent and 18 per cent, with a special 40 per cent rate for luxury and sin goods like high-end automobiles, tobacco, etc.

It is considering redistributing most of items in 12 per cent slab to the 5 per cent category to make essentials cheaper.