Revolutionizing Consumption: The Impact of GST 2.0

The proposed GST reforms involving a two-tier tax structure may result in an average annual revenue loss of Rs 85,000 crore. However, this move by the Centre is projected to invigorate consumption by Rs 1.98 lakh crore, according to an SBI Research Report released recently.

Under the 'next-gen GST,' a two-rate structure of 5% and 18% is proposed, categorizing items as 'merit' and 'standard.' A higher 40% tax will be levied on select goods like pan masala and tobacco. The effective GST rate has declined from 14.4% at inception to 11.6% in 2019 and is expected to drop further to 9.5%.

The consumption boost equating to a 0.6% GDP increase is not anticipated to drive inflation, as taxes on mass consumption items will be lowered. The overall consumption uplift and income tax cuts together equate to Rs 5.31 lakh crore in additional expenditure, translating to 1.6% of GDP. The proposal will be discussed by state finance ministers and, if approved, presented to the GST Council next month.

(With inputs from agencies.)