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The proposed GST 2.0 reforms, which aim to simplify the indirect tax system with a two-rate structure of 5 per cent and 18 per cent, may result in an average annual revenue loss of around Rs 85,000 crore, but will significantly boost consumption and overall growth, according to the latest SBI Research Report released on Tuesday.

The report stated that while the reforms could reduce the effective weighted average GST rate to 9.5 per cent, the anticipated loss will likely be offset by increased consumption and cess adjustments. 

“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… Fiscal deficit for FY26 unlikely to be breached… Debt Market fears thus appear somewhat myopically overblown,” the report observed.

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According to SBI Research, the revenue loss from GST 2.0 will depend on how goods in the current 28 per cent tax bracket are redistributed.The report laid out two scenarios:

In one case (Scenario-1), if more goods move to the lower 18 per cent slab, the annual loss could be about Rs 1.1 lakh crore.

In another case (Scenario-2), if more goods are shifted to the higher 40 per cent slab, the loss could be lower at around Rs 60,000 crore.

On average, the shortfall is estimated at around Rs 85,000 crore. For FY26 specifically, the loss may be limited to about Rs 45,000 crore, which the SBI Research report states could be covered by higher taxes on sin goods like pan masala and tobacco.

At the same time, cheaper goods and services are expected to boost consumption by nearly Rs 1.98 lakh crore. When combined with recent income tax cuts, total additional spending in the economy could rise by Rs 5.31 lakh crore, or 1.6 per cent of GDP.

Also Read:GST Rate Cut: Handicrafts to attract 0% levy under new system, say sources

SBI Research underlined that the fiscal impact of GST 2.0 is expected to be limited. 

“The balance in compensation cess is around Rs 45,000 crore. An equivalent revenue foregone of about Rs 45,000 crore in FY26 is equally divided between states. Since the compensation cess is only for the states, thus Rs 22,500 crore could be adjusted from the compensation cess in the case of a baseline scenario, leaving Rs 22,550 crore still in the compensation cess kitty. The remaining Rs 22,550 crore revenue foregone to the Centre could at best add 5 bps to the Centre’s fiscal deficit,” the report noted.

Further, even if there is no adjustment, the headline loss is likely to be offset. SBI Research estimated that a consumption boost of Rs 5.5 lakh crore under GST 2.0, with an effective tax rate of 9.5 per cent, could generate additional GST revenue of Rs 52,000 crore. This would be shared equally between the Centre and states at around Rs 26,000 crore each.

Inflation is also expected to moderate. SBI Research said, “Overall, we believe CPI inflation may be moderated in the range of 20 to 25 bps assuming very modest passthrough.” The reduction in GST on essentials like food and clothing from 12 per cent to 5 per cent alone could lower CPI inflation in this category by 10–15 bps.

Also Read:GST reduction may boost auto demand, job creation in India: HSBC Report 

The proposal, announced by Prime Minister Narendra Modi during his Independence Day address as a “next-generation GST reform”, is set to be discussed by a panel of state finance ministers this week before being placed before the GST Council in its September meeting.

The current GST structure (GST 1.0) has four major slabs--5 per cent, 12 per cent, 18 per cent and 28 per cent--alongside special rates on gold, diamonds, and rough diamonds, and a compensation cess on select goods like tobacco and aerated drinks. Under the new structure, items will be broadly categorised under the 5 per cent “merit” rate, 18 per cent “standard” rate, and 40 per cent for demerit goods.

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Shrishti Bisht is a journalist at Zee Biz, where she covers a wide range of topics from IPOs, startups, and market trends to global developments and economic shifts shaping the world. She cl ...By accepting cookies, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.