The Union Minister of Finance, Smt. Nirmala Sitharaman, informed the Lok Sabha dated December 15, 2025 on issues relating to revenue losses to States arising from GST rate rationalisation.
Replying to Starred Question No. 216 raised by Shri V K Sreekandan and Shri S Venkatesan, the Finance Minister stated that at present, there is no proposal under consideration to constitute a new Group of Ministers (GoM) to address initial revenue losses of States due to GST rate rationalisation.
During the 56th meeting of the GST Council, the Hon’ble Finance Minister of Kerala highlighted that the State’s consumption pattern is such that a majority of goods consumed attract higher tax rates. Consequently, the impact of GST rate rationalisation on Kerala’s revenues is expected to be relatively higher.
The Government informed that the State of Kerala carried out its own assessment of potential revenue losses focusing on four sectors—automobiles, insurance, cement, and electronics. As per the State’s estimates, the revenue loss from these sectors alone is expected to be around Rs. 2,500 crore annually, while the total annual revenue loss for Kerala is estimated to be over Rs. 8,000 crore.
Regarding the overall impact of GST rationalisation, the Government stated that based on consumption data and value-chain analysis for 2023–24, items shifted from the 28% tax slab to the 40% slab are projected to generate additional revenue of approximately Rs. 45,570 crore. At the same time, the broader rate rationalisation exercise is expected to result in a gross revenue implication of about Rs. 93,300 crore, leading to a net negative impact of around Rs. 47,700 crore.
The Finance Minister said that these estimates are not definitive, as tax collections are dynamic in nature. Factors such as tax buoyancy, improved compliance, and reduced disputes due to lower rates are expected to positively influence revenue outcomes over time.
The Reply can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2025/12/Revenue-Loss-to-States-due-to-GST-Rationalisation.pdf
