GST 2.0: Short-term Pain, Possible Long-term Gain

Posted on September 18th, 2025 in Current Affairs
Tags: Daily current affairs

GST 2.0: Short-term Pain, Possible Long-term Gain

GST Introduction and Evolution

• Introduced in India to promote consumption and production efficiencies.

• Destination-based tax system aimed to rebate taxes paid on inputs.

• New rate structure, effective from September 22, 2025, implies significant rate reductions for some goods.

GST Benefits and Impact

• Major beneficiary sectors include textiles, consumer electronics, automobiles, health, and most food items.

• Production sectors include fertilizers, agricultural machinery, and renewable energy.

Revenue Impact

• Revenues determined as the tax rate multiplied by the tax base, which is final consumption expenditure.

• Lowering tax rates expected to decrease post-tax prices, leading to increased quantity demanded.

Income Augmenting Effect

• Government bears substantial foregone revenues on GST reforms, benefiting the tax-payer and increasing disposable incomes.

• Increased disposable income would increase demand for goods in higher rate categories.

Macro Implications

• May pressure India’s budgeted fiscal deficit for 2025-26.

• Direct taxes contracted by (-)4.3% in the first four months of 2025-26.

GST 2.0 Reform is important topic for Civil service exam (WBCS).

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