State Bank of India (SBI) has stated in its new research report that the recent rate cuts in Goods & Services Tax (GST) are likely to lead to a meager revenue loss of only ₹3,700 crore.
The government, on the other hand, puts the net fiscal gain of GST rate rationalization at ₹48,000 crore per annum.
SBI pointed out that with expected growth and higher consumption, the relatively modest revenue loss of ₹3,700 crore cannot be expected to impact the fiscal deficit.
At the just concluded 56th GST Council meeting, the current four-rate structure was replaced by a two-rate arrangement: a normal rate of 18% and a reduced rate of 5%, while a de-merit rate of 40% was levied on chosen goods and services.
The rationalisation of GST rates would augur well with the banking industry in terms of meaningful cost savings. "GST rate rationalisation has also reduced the effective weighted average rate from 14.4% during inception in 2017, which is expected to reduce to 9.5%," according to the report. Earlier, GST was charged at 5%, 12%, 18%, and 28%.
With the key items (roughly 295 in number) witnessing rates declining from 12% to 5% or zero, CPI inflation in this category is likely to reduce by 25 to 30 basis points in the ongoing financial year.
“Overall, the CPI inflation may be moderated in the range of 65 basis points to 75 basis points over 2026-27,” according to the report.
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