GST 2.0 will cause an annual loss of 85000 crores to the government, yet the economy will gain momentum; how?

GST 2.0: A report by SBI Research has revealed that even though consumption may reach around 1.98 lakh crores due to GST reforms, the government's revenue may suffer a loss of up to 85,000 crores.

GST 2.0: The Government of India is preparing to implement a two-tier GST structure by October this year. In this, there is talk of eliminating the tax slabs of 2 percent and 28 percent and keeping the slabs of 5 percent and 18 percent. This will undoubtedly make things used in everyday life cheaper such as FMCG, cement, small cars and air conditioners etc.

However, due to this the government may have to suffer a loss of up to 85,000 crores annually. The report estimates that the government may face a loss of about Rs 45,000 crore between October and March in the financial year 2025-26. The good thing is that consumption is also expected to reach around Rs 1.98 lakh crore.

Prime Minister Narendra Modi had indicated next generation reforms in GST from the ramparts of the Red Fort on the occasion of Independence Day on August 15. This will cause loss of revenue to the government, but if consumption increases, the economy will be strengthened. Its effect will be seen on the country's GDP. This has been revealed in a report by SBI Research.

Things will be divided into two categories

Since there will be only two tax slabs under the new system. Accordingly, things will be divided into both 'standard' and 'essential' categories. Up to 40 percent tax will be levied on selected things like pan masala, tobacco and online gaming. SBI's research states that the effective weighted average GST rate has been continuously declining since 2017. In this way, it has declined from 14.4 percent to 11.6 percent by September 2019 and now with the revision in rates, this figure can further decrease to 9.5 percent.

Inflation may fall

Even though GST reforms cause loss of revenue, despite this, GDP is expected to rise by 0.6 percent. The country's economy will get support from strong consumption of consumer goods. The report also stated that there is no possibility of inflation increasing due to this step of the government because common consumer goods will become cheaper. Under the new system, Consumer Price Index (CPI) inflation may decrease by 20-25 basis points. The Finance Ministers of the states will discuss this proposal of the government on Wednesday and Thursday. If consensus is reached, it will be placed in the GST Council meeting next month.