Prime Minister Narendra Modi’s proposed overhaul of the Goods and Services Tax (GST) regime is designed to encourage states — including those governed by Opposition parties — to accept the Centre’s rate rationalisation plan. Finance ministry estimates indicate the restructuring may cause a short-term revenue dip, but this is expected to be offset by higher consumption in the coming months.

Key Highlights

• GST simplification expected by Diwali—two-rate structure likely, offering relief and stimulating consumer demand.
• Centre expects GST overhaul to drive economic inclusion, improve tax compliance, and boost domestic spending.

During discussions led by Bihar Deputy Chief Minister Samrat Chaudhary on the rate rationalisation panel, states such as Kerala, West Bengal, and Karnataka opposed major changes or slab reductions, citing fears of revenue loss. They instead suggested higher tax rates for luxury shoes and apparel.

Despite resistance, the Centre is pushing forward with a sweeping revamp aimed at simplifying GST, improving predictability, and boosting compliance. “The changes will significantly spur consumption and enhance overall collections and economic activity. If implemented around October, we expect to recover any revenue impact by year-end, driven by higher spending and broader participation, in line with the Laffer curve effect,” said a senior finance ministry official.

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Economist Arthur Laffer’s theory suggests that extreme tax rates — whether too high or too low — reduce revenue, while rationalised rates can improve compliance and collection.

The GST revamp roadmap has been shared with the Group of Ministers (GoM), and the Centre hopes to convene a GST Council meeting in September or October so the new rates can roll out before Diwali. Finance Minister Nirmala Sitharaman is also expected to hold direct consultations with states to secure broader support.