After Prime Minister Narendra Modi on Thursday announced the GST 2.0 during his Independence Day speech, SBI Research report highlighted that in the long run, there is no apparent trade off between tax reforms and consumption just as we have no trade off between growth and inflation in the long run.
The GST 2.0 could unleash a consumption boost and hence higher tax revenue, lower inflation and higher growth. The revenue loss through GST rate adjustment could be more than offset by increased consumption and cess adjustments, it said.
Overall, we expect a revenue loss of around Rs 1.1 lakh crore in a scenario where 30:70 movement of 28% slab share across 40% and 18% slab happens. The revenue loss would be around Rs 60,000 crore in scenario when there is a 50:50 movement of 28% slab share across 40% and 18% slab.
Thus, average revenue loss could come around Rs 85,000 crores. For FY26, it could be at Rs 45,000 crores. Overall headline revenue loss likely contained a concomitant shift in sin goods from 28 to 40%.
The report further said there is an estimated consumption boost of Rs 5.5 lakh crores with an effective tax rate applied at ~9.5%, the additional GST revenue to the Government exchequer comes to around Rs 52,000 crores, that could be equally divided between Centre and states at Rs 26,000 crore.
On an average, the Centre has exceeded the projected tax revenue by Rs 2.26 trillion in the last four years.
In terms of CPI inflation, SBI Research said it may be moderated in the range of 20 to 25 bps assuming very modest pass through.