GST Council Meeting: Tax Reforms and Revenue Concerns

The upcoming GST Council meeting is expected to focus on tax reforms and changes in GST slabs, but the real challenge lies in addressing the impact on government revenue.

Prime Minister’s announcement of next-generation GST reforms by Diwali has raised expectations. The Group of Ministers (GoM) has already recommended moving towards two primary slabs – 18% and 5% – with a higher 40% slab for select goods. This makes reforms highly probable and gives the Centre time to fine-tune the proposal.

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Revenue Concerns for States

While the reform looks promising, States fear revenue losses. According to an SBI research paper, the weighted average GST rate could fall from 14.4% to 9.5%, leading to an annual revenue loss of nearly ₹85,000 crore. This is a substantial figure, and mere hopes of higher consumption may not fully ease state concerns.

Market Insights

In FY 2024–25, GST collections stood at ₹22.08 lakh crore, with 65% of revenue coming from the 18% slab. Analysts believe that the shift of items from the 28% slab to 18% could balance out the movement from 18% to 5%, limiting revenue damage. Meanwhile, the proposed 40% slab on select commodities may further cushion losses.

Key Insight

The real test will be balancing simplified tax slabs with revenue stability. While reforms may encourage consumption and compliance, states will seek stronger assurances before agreeing.

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