The Union Government has informed Parliament that Goods and Services Tax (GST) rate rationalisation could result in a substantial net revenue loss to States, even after factoring in additional collections from higher tax slabs. The disclosure was made by Finance Minister Nirmala Sitharaman in a written reply to a starred question in the Lok Sabha on December 15, 2025, addressing concerns over revenue losses faced by States following recent GST reforms.
Replying to questions raised by Members of Parliament V K Sreekandan and S Venkatesan, the Finance Minister clarified that, at present, there is no proposal under consideration to constitute a new Group of Ministers (GoM) to specifically address initial revenue losses suffered by States due to GST rate rationalisation. This comes amid growing demands from several States seeking institutional mechanisms to mitigate fiscal stress arising from changes in GST rates.
The issue of revenue loss was prominently flagged by the State of Kerala during the 56th meeting of the GST Council. According to the statement placed before the House, Kerala expressed serious concerns that its unique consumption pattern—where a significant share of consumed goods falls under higher tax brackets—makes it particularly vulnerable to revenue erosion following rate rationalisation.
Kerala, the Finance Minister noted, conducted its own assessment of the likely revenue impact by analysing four key sectors: automobiles, insurance, cement, and electronics. Based on these sector-specific estimates, the State projected an annual revenue loss of around ₹2,500 crore from these segments alone. Overall, Kerala’s total annual revenue loss due to GST rate rationalisation was estimated to exceed ₹8,000 crore, underscoring the magnitude of the fiscal challenge faced by the State.
At the national level, the Government has estimated that the broader GST rate rationalisation exercise would result in a gross negative revenue implication of approximately ₹93,300 crore. This loss, however, is expected to be partially offset by additional revenue of around ₹45,570 crore arising from the movement of certain goods from the 28 per cent GST slab to a higher 40 per cent tax bracket, based on consumption patterns and value-chain data for 2023–24.
After accounting for these offsetting gains, the net revenue loss to the States is projected at roughly ₹47,700 crore. The Finance Minister cautioned, however, that these figures should not be treated as final or definitive. She emphasised that tax collections are dynamic and subject to buoyancy, and that lower tax rates could potentially lead to improved compliance, expansion of the tax base, and a reduction in litigation and disputes over time.
The parliamentary response highlights the continuing debate over GST rate rationalisation and its fiscal impact on States, particularly those with consumption-heavy economies. As discussions within the GST Council continue, States like Kerala are expected to press for safeguards or compensatory mechanisms to address revenue stress arising from structural tax reforms under the GST regime.
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