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Key Points

The State Bank of India's latest report shows that GST rate reductions will have a much smaller impact on government revenues than initially feared. Higher consumption trends and robust tax collection growth have significantly reduced the projected revenue loss. The GST rationalization is expected to lower consumer inflation substantially while simplifying compliance. This structural reform is positioned to benefit both consumers and government finances in the long run.

Key Points: SBI Estimates GST Rate Cut Revenue Loss at Rs 3700 Crore for FY26

  • SBI projects minimal Rs 3700 crore central revenue loss from GST cuts
  • Higher consumption and tax growth offset initial revenue reduction estimates
  • GST rationalization expected to reduce CPI inflation by 65-75 basis points
  • Simplified tax framework to widen tax base and improve compliance long-term
3 min read

Central govt's revenue loss due to GST rate reduction will be Rs 3700 crore for FY26: SBI

SBI report reveals GST rate cuts to cause only Rs 3700 crore central revenue loss in FY26, with higher consumption and tax growth minimizing fiscal impact.

"based on the trend growth and consumption boost, we expect Rs 3,700 crore revenue loss in GST - State Bank of India Report"

New Delhi, September 5

The revenue loss of the central government due to the recent GST rate reduction will be around Rs 3,700 crore in FY26, as higher growth and a boost in consumption have reduced the impact on revenues, according to a report by the State Bank of India (SBI).

The report highlighted the data that by taking the baseline of FY24, the government had estimated a gross loss of Rs 93,000 crore due to GST rate cuts.

However, after adjusting for extra revenue collection, the net loss stood at Rs 48,000 crore.

For FY26, SBI estimates the gross revenue loss to be higher at Rs 1.11 lakh crore. But with strong consumption trends and higher tax revenue, the net loss is projected to decline sharply to Rs 25,794 crore for the full FY26 including centre and states share.

For a six-month period, the Centre's share of loss is significantly smaller.

As per FY24 baseline, it stood at Rs 6,960 crore, while in FY26 it is expected to reduce further to Rs 3,740 crore.

It stated "based on the trend growth and consumption boost, we expect Rs 3,700 crore revenue loss in GST"

On an annualized basis, the government estimates the net fiscal impact of GST rationalisation at around Rs 48,000 crore. However, SBI's calculations, based on trend growth and consumption boost, point to a much smaller revenue loss of Rs 3,700 crore, which is just about 1 basis point impact on the fiscal deficit.

The report also pointed out that in the past, GST rate cuts have led to additional revenues of nearly Rs 1 trillion.

It emphasized that rationalisation of tax rates should not be seen as a temporary stimulus to demand but rather as a structural reform. The simplified framework is expected to reduce compliance burdens, encourage voluntary compliance, and widen the tax base in the long run.

On the inflation front, the report mentioned that the reduction in GST rates on essential items, around 295 in total, has brought down rates from 12 per cent to 5 per cent or NIL.

This is expected to reduce CPI inflation in this category by 25-30 basis points in FY26, considering a 60 per cent pass-through effect on food items.

Additionally, the rationalisation of GST rates on services is estimated to lower CPI inflation by another 40-45 basis points, with a 50 per cent pass-through effect on other goods and services.

Overall, SBI expects CPI inflation to moderate by 65-75 basis points over FY26-27, providing further relief to consumers while ensuring minimal impact on government finances.

- ANI

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Reader Comments

P
Priya S
Finally some relief on essential items! The reduction from 12% to 5% or nil on 295 items will make daily groceries more affordable. Hope this actually reflects in market prices soon.
S
Sarah B
Interesting analysis. The government's initial estimate was Rs 93,000 crore loss but SBI projects only Rs 3,700 crore? That's a huge difference. Hope SBI's optimistic projections are accurate.
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Arjun K
This is smart economics. Lower rates lead to better compliance and wider tax base. In long run, government might actually collect more revenue. GST simplification was much needed reform.
M
Meera T
While I appreciate the rate reduction, I hope the government ensures that businesses actually pass on the benefits to consumers. Many times we don't see the price reduction in markets.
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Vikram M
Only 1 basis point impact on fiscal deficit? That's impressive! Shows that well-designed tax reforms can benefit both citizens and government finances. More such rationalization needed.
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Karthik V
The report mentions past GST cuts led to additional revenues of nearly Rs 1 trillion. This proves that lower rates can actually boost collection through increased compliance and consumption. Win-win situation! 👍

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