GST rates: Experts urge K’taka to look beyond short-term revenue loss

Bengaluru: Ahead of Wednesday's GST Council meeting, trade representatives and economists have urged the Karnataka govt to support the Centre's proposed rejig of GST rates, arguing that lower rates will spur consumption and eventually boost revenue.

The Centre is seeking to merge the current four-tier structure into two main slabs of 5% and 18%, besides moving sin goods like tobacco and premium cars from 28% to 40%.


While the group of ministers (GOM) on rate rationalisation has accepted the plan, final approval now rests with the GST Council. Non-BJP ruled states have flagged potential revenue losses and sought compensation from the Centre. Karnataka estimates that it would lose Rs 15,000 crore in the current fiscal.

Revenue minister Krishna Byre Gowda, Karnataka's representative at the GST Council, reiterated that the Siddaramaiah govt supports rate rationalisation. "But there are concerns about states losing revenue. The Centre has not spelt out any plans on this. We are demanding that the Centre factor this in and ensure revenues of states are protected."

But experts say these concerns are short-term and urge states to consider long-term gains. "This is a long-pending and much needed reform," said Prof D Rajashekhar, economist and former director of Institute for Social Economic Change. "Many mass consumed goods are being taxed at high rates and consumers will greatly benefit from lower prices."

Rajashekhar said it is imperative to boost domestic demand since Donald Trump's tariffs have hit exports. "GST rate consolidation will be timely," he said. "States' revenue concerns are genuine, but they should not come in the way of reforms since any shortfall they are projecting is only momentary."

He said raising taxes on sin and luxury goods to 40% will offset revenue shortfalls and called for consensus on reclassifying goods to maintain revenue neutrality.

If the slabs are rejigged as planned, prices of many mass-consumed items would reduce significantly. For instance, cement taxed at 28% is expected to drop to 18% and electronics like monitors and air conditioners to 18%.

"Reducing GST on everyday essentials and aspirational goods will make products more affordable, drive consumption, and support overall economic growth," said Kumar Rajagopalan, CEO, Retailers Association of India. "We recommend that the tax rate on a single product should be standardised across price points, regardless of the value per piece. The ongoing discourse about the short-term revenue loss should not derail the reforms."

Kamal Bali, MD and president of Volvo Group India, said: "The rationalisation of GST slabs will lead to simplification that will in turn result in less litigation, ease of doing business and eventually better compliance. I don't see any reason to object to it."

Some economists also advocate extending GST to petroleum products. "These proposed reforms are limited at best," said M Govind Rao, former director of National Institute of Public Policy and Finance. "It does not make sense if petrol and diesel are kept out of the GST ambit. The Centre and states must set aside politics and bring in comprehensive reforms."