New Delhi, September 5, 2025 — The State Bank of India (SBI), in its latest research report, has projected that the recent Goods and Services Tax (GST) reforms will result in a minimal revenue loss of ₹3,700 crore to the central government. The report follows the 56th meeting of the GST Council, which approved a major overhaul of the indirect tax structure aimed at simplifying compliance and stimulating consumption.
The Council’s decision to move from a four-tier GST rate structure to a streamlined two-tier system—comprising a standard rate of 18% and a reduced rate of 5%, along with a 40% de-merit rate for select goods—marks a significant shift in India’s tax policy. According to SBI, while the government estimates an annualised fiscal impact of ₹48,000 crore due to rate rationalisation, the actual revenue loss is expected to be far lower, thanks to increased consumption and improved tax compliance.
The report highlights several positive outcomes of the reform:
- Weighted Average Rate Reduction: The effective GST rate, which stood at 14.4% in 2017, is projected to decline to 9.5%, making the tax regime more consumer-friendly.
- Inflation Moderation: With GST rates on nearly 295 essential items reduced from 12% to 5% or zero, Consumer Price Index (CPI) inflation in this category may ease by 25–30 basis points in FY26. Overall CPI inflation could moderate by 65–75 basis points over FY26–27.
- Banking Sector Gains: The simplified tax structure is expected to deliver meaningful cost efficiencies for banks and financial institutions, further supporting economic growth.
SBI emphasized that the reforms should be viewed as structural rather than temporary, noting that past GST rate cuts have often led to additional revenues through broader compliance and increased consumption. The report also suggests that the fiscal impact—just about one basis point of the deficit—is unlikely to disrupt macroeconomic stability.
The GST Council’s move is seen as part of a broader strategy to support demand-led growth, with implications for sectors such as FMCG, retail, automobiles, insurance, and infrastructure. Analysts expect the reforms to encourage private investment and revive consumption in a slowing economy.
As the government prepares to implement the new rates, stakeholders across industries are watching closely to assess the long-term impact on pricing, margins, and consumer sentiment.
