The Central government is preparing for a potential revenue shortfall of Rs 40,000 crore due to a proposed overhaul of the Goods and Services Tax (GST) structure, according to Finance Ministry sources.
The Fitment committee which is a panel of officers from the GST secretariat have worked out draft details on the deficit that both centre and states will brace for.
The new GST framework aims to simplify the current tax system by introducing a two-rate structure, 5% and 18%, along with 40% on sin goods. This restructuring is expected to significantly impact the Centre’s and state’s revenue.
In addition to this, the Centre is set to lose approximately Rs 20,000 crore in GST and TDS collections from online gaming platforms, following a recent decision that appears to effectively ban such activities in the country.
For most services, no significant changes are expected, except for the proposed removal of GST on health and life insurance premiums for individuals.
The government anticipates that the revenue loss will be temporary and can be offset by increased consumer spending. Earlier this year, they introduced an income tax rebate for salaried individuals earning up to Rs 12.75 lakh annually, also aimed at boosting consumption.
The 56th meeting of the GST Council is scheduled for September 3-4 in New Delhi, with an officers’ meeting on September 2. Originally planned for late September or early October, the meeting was advanced after consultations with state governments. The Centre is now aiming to roll out the new GST rates by Vijayadashami (October 2nd).
“If all processes are in place, then the implementation could be early, around Dussehra” said an official.
The Group of Ministers (GoM) on rate rationalisation, which met on August 20th and 21st in Delhi, has endorsed the Centre’s proposal to eliminate the 12% and 28% tax slabs. The participating state ministers agreed to the two-tier GST structure of 5% and 18%.
These developments follow Prime Minister Narendra Modi’s announcement during India’s 79th Independence Day celebrations, where he promised next-generation GST reforms by Diwali.
“The government will bring Next-Generation GST reforms, which will bring down the tax burden on the common man. It will be a Diwali gift for you,” he said, highlighting the reforms’ intent to benefit citizens and stimulate economic activity.
