Lowering GST from 12% on Moving Goods Could Lead to ₹80,000 Crore Annual Revenue Loss

According to news reports, the government's plan to shift a majority of goods from the 12% GST bracket to 5% may result in an annual revenue loss of around ₹80,000 crore. This change, aimed at rate simplification and easing compliance, is expected to benefit consumers but comes with considerable fiscal implications.

GST Slab Shift to Impact ₹80,000 Crore in Revenue

The proposal under review by the Group of Ministers (GoM) involves rationalising GST rates by moving several goods from the 12% slab to the 5% category. Items in the scope include ghee, butter, packed coconut water, fruit juice, pickles, almonds, processed food, and tractors. The Centre estimates this shift could bring down tax collections by ₹80,000 crore annually.

Luxury and Sin Goods to Remain at 40% GST Rate

To balance revenue loss, the government will retain a 40% GST rate on luxury and sin goods. This includes tobacco, cigarettes, aerated drinks, and large-engine automobiles exceeding 1,200 cc. The existing cess on these items is likely to be fully merged into the GST framework to further streamline taxation.

Focus on Simplification and Consumer Relief

Reducing rate slabs to just 5% and 18%, with demerit goods exclusively under the 40% category, forms the crux of the proposal. The GoM, including finance ministers from states like Bihar, Karnataka, Kerala and West Bengal, is set to evaluate these changes on August 21, 2025.

Read More: Govt to Streamline GST with 5% and 18% Rate: Plan to Introduce New 40% Rate on Sin Goods!

Wider Range of Goods May Become Cheaper

Beyond processed food items, certain construction services and multimodal transport could also benefit from the shift to 5%. The Centre aims to reduce compliance burdens while aligning the tax regime with evolving consumption behaviour, bringing more transparency and consistency to indirect taxation.

Conclusion

While the simplification of GST slabs promises relief for consumers and businesses, the estimated ₹80,000 crore loss poses a significant fiscal challenge. By relying on high tax rates for non-essential luxury goods and sin categories, the government seeks to strike a functional balance between revenue and reform.

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