The government is planning big changes to the Goods and Services Tax (GST). According to a new report by SBI Research, the new GST system could increase household consumption by ₹1.98 lakh crore, but it may also cause the government to lose about ₹85,000 crore in revenue every year.
What is being proposed?
- The current GST has four tax slabs – 5%, 12%, 18% and 28%.
- The new GST 2.0 system will have only two main rates:
- 5% for essential goods like food and clothing.
- 18% for other standard goods and services.
- A 40% tax will remain on harmful items like pan masala and tobacco.
How will this affect people?
- Household goods will get cheaper, which means people will spend more.
- Consumption is expected to rise by ₹1.98 lakh crore, giving the economy a 0.6% GDP boost.
- Inflation (rise in prices) will not increase; in fact, it may reduce slightly:
- Consumer inflation could fall by 20–25 basis points.
- Food inflation may drop by 10–15 basis points.
- Along with the recent income tax cuts, overall household spending could rise by ₹5.31 lakh crore, which is about 1.6% of India’s GDP.
Impact on government revenue
- While people will benefit, the government could lose ₹85,000 crore every year due to lower taxes.
- For the current year, if GST 2.0 starts from October, the revenue loss would be about ₹45,000 crore.
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What’s next?
- A panel of state finance ministers will review the proposal this week.
- After that, the GST Council will take the final decision next month.
- Prime Minister Narendra Modi has called this a “next-generation reform” and said it could be rolled out by Diwali.
