Highlights: GST cut to negate Trump’s tariff; May hit Rs 2 Lakh crore, Experts warn of high revenue strain”

Cigarettes currently face five types of taxes. If GST rates on sin goods rise from 28% to 40%, with the compensation cess renamed as a health cess, the overall tax incidence would increase by about 7%, reducing realisations for companies by around 10%.

To offset this, companies such as ITC are expected to raise prices by about 7%, which consumers are likely to absorb without much resistance.

Nomura said this scenario would be positive for ITC, as price hikes could drive double-digit revenue growth and strong cigarette EBIT growth. However, it cautioned that raising prices beyond key ₹10 pack points could put pressure on volumes.

GST rates, if cut from 12 percent to 5 percent on items such as noodles, pasta, cheese, butter, sauces, dry fruits and dairy beverages, could benefit snack makers and packaged food companies.

Bikaji and Gopal Snacks, which earn 80–85 percent of their revenue from namkeens and snacks, are expected to gain the most. Nestle India may also benefit, as nearly one-third of its sales come from noodles, pasta and condensed milk. ITC, Britannia and Emami are also likely to see a positive impact. Quick service restaurant chains could save costs if cheese rates are lowered, since they cannot claim input tax credit.

Nomura highlighted that items such as biscuits, soaps, shampoos, toothpastes and hair oils—currently taxed at 18%—could materially benefit companies with large exposure to these categories if the rate is slashed to 5%.

“If rates come down from 18% to 5% for essentials, it can provide a substantial boost to consumption,” the report said.

Britannia, which derives nearly 80% of its sales from biscuits, and Colgate, with 80% of sales from toothpastes, stand out as the top winners. Other beneficiaries include Mrs Bectors, Bajaj Consumer, Hindustan Unilever, Godrej Consumer, and Dabur.

According to Deloitte’s survey, India Inc has expressed a positive sentiment on the Goods and Services Tax (GST) regime, which was implemented on July 1, 2017, replacing a complex system of multiple indirect taxes levied by the Centre and states (such as excise duty, VAT, and service tax).

For GST 2.0, the top priority that emerged was “promoting exports by liberalising GST export provisions,” followed by rationalising rates and unlocking working capital, the report said. MSMEs, in particular, emphasised the need for faster refunds and cross-utilisation of CGST credit to ease cash flow pressures.

SBI Research estimates that the proposed GST 2.0 reforms will not hurt state finances but make them bigger beneficiaries.

Since GST is shared equally between the Centre and states, and 41% of the Centre’s share is devolved to states, the report projects that states will receive about Rs 14.1 lakh crore in FY26—Rs 10 lakh crore as SGST and Rs 4.1 lakh crore via devolution—ensuring they remain net gainers even after the end of compensation cess.

It noted that while an immediate rate cut could cause a short-term dip of 3–4% month-on-month (about Rs 5,000 crore or Rs 60,000 crore annually), revenues usually rebound with 5–6% monthly growth.

“We have decided to accept the GST proposal. It will help the common man and expand the Indian economy,” said Andhra Pradesh Finance Minister Payyavula Keshav, as per a report by CNBC-TV18.

“We will now see what the GST Council deliberates to calculate the loss states may face due to GST rationalisation. It is the Centre’s responsibility to compensate for the loss,” said Himachal’s GST representative, according to a CNBC-TV18 report.

Finance ministers of opposition-ruled states met today ahead of the crucial GST Council meeting. They pressed for compensation to cover revenue losses from the proposed GST rate rejig.

“If the Centre agrees to compensate us for whatever loss we incur, then we have no issues in approving the agenda before the Council. I don’t think the issue will come up for voting, as in a federal structure, it is the responsibility of the Centre to compensate states for revenue loss,” said Jharkhand Finance Minister Radha Krishna Kishore, according to a PTI report.

A report by Ambit Capital highlights that wealthier households will gain more from the reduction of the 28% slab to 18%, given their higher spending on discretionary items. The report noted, “The top 5% of the income category spends 5–6% of their budget on 28% GST items, compared to just 2–3% for the remaining 95% of the population.”

If approved in the GST Council meeting, the reform is expected to be implemented from October, around Diwali.

A report by Ambit Capital says lower-income households will benefit the most from moving items in the 12% slab to 5%, as these make up a larger share of their spending. “The bottom 50% of urban and rural population, measured by monthly consumption expenditure, spend 25% of their budget on goods with a 5–12% GST rate,” the report noted.

Before the GST Council meeting, Finance Minister Nirmala Sitharaman met a group of ministers from six states in late August, who had approved the proposal to simplify GST slabs. However, the ministers flagged two concerns: finding an alternative mechanism to recover revenue loss from lower taxes and ensuring that rate cuts actually benefit the common man.

Prime Minister Narendra Modi announced a major GST reform on Independence Day, August 15, aimed at restructuring the existing GST slabs. The proposal seeks to reduce the four slabs (5%, 12%, 18% and 28%) to just two. According to reports, almost 99 per cent of items in the 12% bracket will be reclassified under the 5% slab, while nearly 90% of items in the 28% slab will be moved to the 18% category. In addition, a special 40% rate has been proposed on 5–7 items, including sin goods.

Greetings! The two-day GST Council meeting commences today in New Delhi, chaired by Union Finance Minister Nirmala Sitharaman. The focus is expected to be on India’s next-generation GST reforms, including rationalisation of tax rates and simplification of compliance. Stay tuned to this space for all the key updates.