GST Reforms and Revenue Loss in India

• Prime Minister Narendra Modi announced GST reforms, moving from a four-tier system to a two-tier structure of 5% and 18%.

• The Ministry of Finance estimates the proposed changes could impact revenues between ₹60,000 crore- ₹1,00,000 crore per year, roughly 0.2-0.3% of India’s GDP.

• Short-term impact of GST rate cuts is real, with estimates suggesting a short-term hit of closer to ₹45,000 crore in the first year of implementation (FY2025-26).

• A higher rate of around 40% on sin goods and luxury goods will help recoup some of the revenue.

• The average tax incidence reduced from 15% before GST to around 11.5% after GST came in and after the rate cuts.

• States like Maharashtra, Karnataka, and Tamil Nadu are manufacturing and service-heavy.

• The average rate of GST after the cuts is not likely to be very big, as about 70% of GST revenues come from the 18% slab.

• States should view rate cuts and rationalisation as a step towards ease of doing business and attracting more manufacturing and investment.

India GST Revenue Loss is important topic for Civil service exam (WBCS).

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