Kashmir’s GST Test

Two-tier GST may ease compliance nationwide, yet for J&K, it risks dampening growth and straining essential services.

- Malik Daniyal

he Goods and Services Tax (GST) Council’s recent overhaul, which compresses rates into a two-slab system, 5% and 18%, with a 40% levy for luxury and sin goods, aims to simplify taxation and stimulate consumption nationwide.

For the Union Territory of Jam-mu & Kashmir (J&K), however, the implications are unique, shaped by its fiscal structure, economic composition, and heavy reliance on indirect tax revenues.

Chief Minister Omar Abdullah has warned that the rate reductions could cut the UT's GST receipts by 1012%. Such a decline is significant for a region already battling revenue instability post-Pahalgam shock.

Without compensatory mechanisms, this shortfall threatens liquidity, public investment, and essential services.

J&K’s fragile accounts, strained further by security disruptions and subdued economic activity, could face a fiscal crunch that slows developmental momentum.

At the national level, the reforms are intended to revive domestic consumption amid sluggish growth and muted private investment.

Since its 2017 rollout, GST had grown administratively complex, with four slabs (5%, 12%, 18%, and 28%) creating classification disputes and compliance burdens.

The two-tier system reduces this complexity, encourages consumption of price-sensitive goods, and preserves revenue through a steep 40% levy on luxury and sin products.

This approach reflects a classic counter-cyclical fiscal strategy: supporting growth while safeguarding government receipts.