Will lower GST rates upset the fiscal math?

The much-awaited goods and service tax (GST) reform is expected to catalyze domestic consumption, but it will cause a revenue loss, at least temporarily, even as the government's tax mobilization has been weak this fiscal. Mint looks at its implication on the fiscal deficit.

- BY N. MADHAVAN

Stiff target

Lower revenue mobilization will test India's fiscal consolidation record in FY26.

1 How significant is the GST reform?

It is big as most of the shortcomings in GST 1.0 have been addressed. The number of rate slabs has been reduced from four to two (5% and 18%). There will be a 40% rate for mostly the sin goods. Most importantly, the rates have been rationalized in the manner that items of mass consumption are taxed lower, benefitting the common man and laying the ground for a boost in domestic consumption. Apart from the lower tax incidence, the registration process has been simplified, classification issues have been sorted out and the inverted duty structure has been removed.

2 Is revenue loss due to the GST rate cut high?