State set to lose ₹12,000 crore annually from reduced GST

Maharashtra expects a 7% drop in GST revenue, losing ₹10,000-12,000 crore, mainly from auto and electronics sectors, despite hopes for increased consumption.

MUMBAI: With the new slab structure for the goods and services tax (GST) set to roll out from Monday, the Maharashtra government expects an annual drop in revenue by over 7% or ₹10,000 to ₹12,000 crore. The major losses are expected to be in the automobile and electronic industries, where Maharashtra is a leader both in production and consumption.

State set to lose ₹12,000 crore annually from reduced GST

The state government had set a target of ₹2.46 lakh crore from GST and sales tax, a rise of over 20% from its collection in Financial Year 2024-25. The GST collection till July end had crossed ₹57,970 crore against the annual target of ₹1.76 lakh crore. Maharashtra accounts for over 14% of the country’s collection, and more than double the collection of Karnataka, which is second highest.

Chief minister Devendra Fadnavis, while speaking to the media on Sunday, said, “The revolutionary GST 2.0 reforms launched by prime minister Narendra Modi will help increase domestic consumption, giving a boost to production in various sectors. It will be a major boost to the state economy.”

However, sources in the field disagree both with the figures given by the government as well as its contention that consumption will increase with lower GST. A highly placed officer in the GST department said that since Maharashtra accounted for over 14% of the GST collection in the country, the losses would also be approximately the same. “In its estimate of ₹10,000 crore to ₹12,000 crore, the state has said it is expecting a loss of over ₹7,000 crore in the automobile sector and the rest from the electronic and white goods sectors,” he said. “Maharashtra is a major consumer of these goods and also FMCG, Mediclaim and medical equipment, so the reduction in GST here will majorly affect the collections, even more than the state is saying.”

The officer said that although an increase in the consumption of goods where taxes had been reduced was expected, this would not offset the losses. “The GST on Mediclaim has been brought down to zero from 18% and on TVs to 18% from 28% but that does not mean Mediclaim policies will radically increase or that people will buy TVs and ACs without any need,” he said.

Another GST officer said that the losses from the automobile sector alone would be not less than ₹10,000 crore. “The state government is being conservative about the losses,” he said. “Neither the central nor the state government has scientifically gauged the losses at the national and state level, but the actual losses will be felt after December. Even during the GST council meetings, many non-BJP ruled states expressed dissidence and also demanded compensation for the losses. The states are worried about the losses.”

Mitesh Mody, national general secretary of the All India Electronics Association, said that the actual impact on revenue generation could be gauged from January onwards. “Already the sales of electronic items, batteries and so on, where the drop in the GST is huge, have reduced drastically for the last two days since people are waiting for the new GST rollout,” he said. “As far as government revenue is concerned, the drop is certain but the actual losses will be seen only from January. We expect a buoyancy in sales in the reduced-GST goods, but this will not totally offset the drop in the tax revenue.”

Ajit Joshi, chartered accountant and GST expert, also opined that the state government was being too conservative in its calculation of losses. “The government has the figures of the actual potential losses but they are not being shared,” he said.