A 'silent tax'

GST reset may inflate tax costs on several merit goods and insurance, needs fixing

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AFTER THE ANNOUNCEMENT of the goods and services tax (GST) reforms, there is pervasive optimism about a spontaneous boost to consumption demand. But it is hard to miss a dichotomy between this expectation and the near-term (FY26) net revenue loss estimate of just ₹48,000 crore from these reforms. To be sure, that is just 2.3% of the gross GST mop-up excluding cess of ₹20.6 lakh crore in FY25. Apart from the revenue gains from a 12 percentage point increase in the GST rate on specified sin goods to 40%, and higher consumption, another factor that will apparently rein in the revenue loss is that refunds on account of input taxes could be much less in the new regime.