GST rate cut impact on exchequer likely minimal, to boost consumption and widen tax base: Crisil

The Goods and Services Tax (GST) Council’s decision to shift from four slabs to a simpler two-rate structure of 5 per cent and 18 per cent from September 22 is unlikely to weigh on government finances, ratings firm Crisil has said.In its latest report, Crisil noted that the government has estimated a short-term annualised revenue loss of about Rs 48,000 crore on account of the rationalisation, PTI reported. With total GST collections at Rs 10.6 lakh crore in the previous fiscal, the firm said the impact “does not seem significant.”The rationalisation is expected to reduce the prices of a large number of products and services. Crisil observed that moving from four slabs to two could expand the formal tax net and support buoyancy in collections over the medium term.Before the change, a majority of revenues — 70 to 75 per cent — came from the 18 per cent slab, while the 12 per cent slab contributed only 5 to 6 per cent and the 28 per cent slab accounted for 13 to 15 per cent.The ratings firm said that lowering rates on items previously taxed at 12 per cent is unlikely to result in major revenue loss. It also pointed out that rates remain unchanged for several high-growth services such as mobile tariffs.

Newer categories like e-commerce delivery have been brought under the GST ambit at 18 per cent, the report added.Crisil further said that the benefits on mass consumption items could boost disposable incomes, driving demand and collections. “Producers passing tax changes onto the consumers is a key factor which would also determine the spending pattern of the latter,” it cautioned.