'Rate Cuts Will Boost Consumption': Tax Board Chief On GST 2.0's Revenue Impact

Higher consumption driven by GST rate cuts may contribute to offsetting the government's revenue loss, provided the industry passes on the benefit to consumers, the Central Board of Indirect Taxes and Customs has told NDTV.

Sanjay Agarwal, the chairman of the Central Board of Indirect Taxes and Customs, was speaking at NDTV Profit GST Conclave days after the Centre rolled out sweeping changes under GST 2.0.

Mr Agarwal said the GST has completed eight years, and this was the right time for the next-generation reforms. "There was a thought that changes were required," he said, adding that it is a "journey".

The tax board chief said the government has there is a lot in the pipeline as far as easing processes is concerned. "For rates, we need stability," he clarified.

To a question on the revenue impact of the reforms, Mr Agarwal said that the government estimates a revenue loss of about Rs 48,000 crore based on 2023-24 fiscal data. "It is difficult to estimate the exact revenue implication, but when a rate cut happens, there is more consumption and further stimulus to GST collection," he said, adding a disclaimer that this would only happen if the industry passes on the benefits of the rate cuts to the end consumer.

The government, he said, was confident that the benefits would be passed to the consumer because that had happened after rate cuts in the past. The Centre, he added, is monitoring price data to ensure this happens.

The tax board chief reiterated that India's socio-economic conditions are such that two GST rates are needed, including a lower one that addresses the needs of the masses. A standard rate like in developed countries, he said, can only be implemented when the socio-economic landscape changes.

On the 40 per cent tax rate on sin goods, such as tobacco products like cigarettes, Mr Agarwal said the Centre's stand is that tax incidence on sin goods such as tobacco products would not be lowered. Besides the 40 per cent tax, there will be an additional levy for such products, he said.