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Informist, Thursday, Sept. 18, 2025

KOLKATA – Finance Minister Nirmala Sitharaman Thursday said the reduction in goods and services tax rates is expected to boost the economy and help in generating employment, which would, in turn, lay the foundation for lowering tax rates further.

"Rates have come down, consumption can go up. The more the demand, the companies which are selling those products will have to invest more, produce more, and their capacities will go up. More production will lead to more jobs. More jobs mean a wider tax base because more people will have income to buy things and also pay tax," Sitharaman said, speaking at a seminar in Kolkata on Next-Gen GST Reforms.

She said lower taxes will help in creating more demand for products, and companies will need to increase production to cater to that. New production units, which involve capital expenditure, will help in creating more jobs and, as a result, the tax base will increase. The increase in tax base is due to enhanced consumption and more people coming under the tax radar.

"From there, the tax base widens and that will lead to the foundation for even lesser taxes. If more people are paying tax, we can even bring down the burden even further. That leads to lower taxes and more spending in the economy," she said. 

She said that as GST covers the entire range of goods and services in the country, the tax rate cut is expected to change the pattern of household expenditure and help increase household consumption. The government is monitoring sectors to ensure they pass on the benefits of lower taxes to consumers, the minister said.

Sitharaman said that the collections under the GST regime have increased manifold from INR 7.2 trillion during 2017-18 (Apr-Mar) to INR 22.08 trillion in FY24. While it is perceived that the states will lose some revenue owing to the lowering of the GST rates, the Centre stands to lose more than the states in terms of revenue, Sitharaman said, adding that it is important to improve the efficiency of tax collections.

The finance minister said that although Prime Minister Narendra Modi had announced in his Independence Day speech that lowering GST rates was a gift to people before Diwali, the GST Council had narrowed the deadline to Sept. 22 to implement the GST rate reduction, given the onset of the festive season in West Bengal. "The determination of Sept. 22 was largely influenced by the Pujo... although the prime minister had said before Deepavali," she said.

Mahalaya, which marks the beginning of Durga Puja, the largest festival in eastern India, is on Sept. 21 and Shasthi is on Sept. 27. Usually, in the festive season, consumption goes up and hence is considered important for revenue collection.

Also, the finance minister highlighted that shopkeepers were requesting an early rollout of the GST rate cuts. "The industry was telling us, now, we will have to wait till Deepavali because people are coming to the shop, doing window shopping... they are going back," she said.

Sitharaman said the decision to cut GST rates was influenced by considerations like whether it would benefit the poor and middle-income class, whether it would help meet the aspirations of the middle-income class, whether it would help farmers and the micro, small, and medium enterprises to lower input costs, and help reduce the inversion of the input tax credit.

The finance minister said that under the new GST structure, 90% of the tax refunds will get automatically credited and 10% will be held back for some time to review whether any false claims have been made. This, she said, will help improve capital availability and cash flow with the companies. End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Avishek Rakshit

Edited by Saji George Titus

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