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The net revenue shortfall arising from the recent Goods and Services Tax (GST) rationalisation, estimated at around 0.1 per cent of GDP for the current fiscal, is expected to be offset by the higher dividend transfer from the Reserve Bank of India (RBI), noted a report by CareEdge Ratings.
The report said that with tax collections having already moderated in the year so far, the lower nominal GDP growth projected for FY26 could pose additional challenges in meeting the full-year tax targets. It added that the impact of income tax reductions and GST rationalisation on tax receipts during the remainder of the fiscal year warrants close monitoring. It stated "The net revenue shortfall from GST rationalisation is expected to be offset by the higher dividend transfer received from the RBI". According to the report, the overall subdued tax performance may still exert pressure on government expenditure in the second half of the year, particularly if the Centre remains committed to the fiscal consolidation path. The government aims to continue on its fiscal consolidation trajectory, targeting a gradual reduction in the fiscal deficit in the coming years. During the GST rationalisation announcement, the GST Council had assessed the rationalisation exercise as fiscally sustainable. It projected a fiscal impact of Rs 48000 crore, or 0.15 per cent of GDP, based on FY24 consumption patterns. The Council had also indicated that this impact could be balanced with increased consumption translating into higher GST collections in the coming months. A report by the State Bank of India (SBI) stated that the revenue loss of the central government due to the recent GST rate reduction will be around Rs3,700 crore in FY26, as higher growth and a boost in consumption have reduced the impact on revenues. The SBI report highlighted that, based on the FY24 baseline, the government had initially estimated a gross loss of Rs 93,000 crore due to GST rate cuts. After adjusting for extra revenue collection, the net loss stood at Rs 48,000 crore. The Centre's fiscal position in the first half of the current fiscal year has been marked by slowing tax collections, though healthy non-tax collections, particularly the higher dividend from the RBI have lent support to the overall receipts. The reduction in income tax, announced in the last Budget is also expected to have weighed on income tax collections so far this year. While the impact of GST rationalisation on government finances remains to be seen, the overall fiscal balance may be maintained, aided by non-tax revenues and potential gains from improved consumption trends in the economy. (ANI)
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