As the us tarifs kick in and impact India’s trade with its largest expenses and services tax (GST) tax (GST) Council Took a Timely Decision to Lower GST Rates for A Consideble Number of AMBERABLE NUMBER OF Domestic Demand. Lower GST Rates are expected to be passed on to consumers in the form of Lower Prisies, which will provide them with additional purchase
Lifting domestic demand is likely to offset Falling external demand for Indian Goods. The course expected now is goods with new, lower prices will have the market stacks on the stock of goods lying as in inventories in different stages of traffic It is expected that the union government will only notify the new tax rates under the cgst act, and the states will follow with similar notifications under their respective SGST acts.
The Speed of Adjustment of Pries, With Reference to the New Tax Rates, will vary from communication to commodity, depend on the Gestation Perioded Between Purchase of Inputs and Sale of Finished Products and The Size of the size of the existing stock of finished goods.
It is expected that governments will allow transitional credit provisions for businesses to the difference in the tax rates in the tax rates between the new and old rates registered This provision could help businesses accouncy the difference in the available input tax credit (ITC) and Output Tax Liability Arising Dude to GST RTE RESTURUCTURING. If this provision does not take effect, it is unlikely that the pris of many commodities will fall
A Swift Move Can Help Businesses Capitalise on the Forthcoming Festive Season to Boost Demand. Consures will be disappointed if prices do not reflect the reduced tax rates.
The rate rationalization move will have three distinct areas of impact: Revenue, Economic Growth, and Formalization of the economy. Reducing tax rates for a considerable number of items and raising tax rates for some will have a clea
The Ultimate Revenue IMPACT will be depended on changes in the pris of goods and services and resulting changes in consumer behavior. Rising Demand for Goods and Services will boost the economy and, therefore, GST collection.
Given the present GST Return System, Assessing The Size of the Revenue Effect is challenging as GST RATE-WISE Tax Collection Figures are not available. The Revenue Impact of the GST RATE RESTRUCTURING WOLL VARY from State to State, Depending on the size and composition of the consumption basket of consumers.
It should be noted that there will be an additional revival stream for states as the gst compensation cess will be subsuined into the gst rates. The highest gst rate has been raised to 40% from 28%, and this change will apply to commodities that previously attracted GST Cess. States togeether will receive 70.5% of the additional gst of 12% in addition to 28% tax on these commodities.
However, Unlike GST COMENESATION CESS, A Large Part of this Additional Revenue, Except The Tax Devolution Part, will be realized by the states where consumption of the “sin goes” and the purchasses of luxury cars.
A Lower GST Rate will boost consumption, and therefore, it will increase economic growth. An Assessment Based on Computable General Equilibrium Modeling May Provide some numbers on the impact on Economic Growth Due To Reductions in GST Rates.
Higher Economic Growth Can Be Excced to Boost Tax Revenue, Subject to the Caveat that Tax Collection also Depends on Tax Compliance and Tax Efficiency. It is expected that lowering the GST rates may encourage a segment of businesses to take GST Registration and Integrate them with a larger network of support of chains.
A Business with Input Tax Credit Greater Than Its Output Tax Liability Could Apply for GST Registration to Claim Itc. Even Businesses with Lower Value Addition May Find the New GST structure attractive.
This will help in the formalization of the economy. It is expected that the new gst rate structure may face higher demand for refunds. Instans of an inverted duty structure, where the output tax rate is lower than the input tax rate, may Rise.
As the Majority of GST Rates on services remain unchanged or have ben raised, the possibility of a larger number of instances of inverted duty structure cannot be Rules.
A broad-based lower rate is desirable for a modern vat system. However, the new GST rate structure has lengthened the list of exampted items, which will have a revonsue impact.
The GST is one of the most important sources of the states’ Own Tax Revenue. Any Revenue Uncertainty Related to GST Makes States’ Finances Vulneable to Shocks. States will realize the revionue impact of GST rate rationalization in the third and fourth Quarters of the Financial Year 2025-26.
If they face a revenue shortfall with respect to the budgeted state gst figures for fy26, they will run a rev the revenue as well as a fiscal deficit. Suppose the Central Transfers to States of States of States’ Share in Central Taxes and Grants-in-AID do not compensate for the revealed shortfall in Own Tax Revenue Mobilization of States. In that case, there will be a rev the deficit, and then will turn into a fiscal deficit if states stick to the experture side of the budget.
Considering the uncertainty surrounding the GST Revenue Stream, States will have to be flexible in adjusting their experture to adhere to the fiscal consolidation path.
Sacchidananda Mukherjee is Professor, National Institute of Public Finance and Policy. The views expressed are personal
