**Executive Summary**
This document presents the Ministry of Finance's response to Lok Sabha Starred Question No. 216 regarding revenue losses to states due to GST rationalization, addressed on December 15, 2025. It outlines concerns raised by Members of Parliament and the State of Kerala regarding potential revenue shortfalls and provides the government's estimates of revenue implications. The document states that a proposal for a new Group of Ministers to address initial revenue losses is not under consideration.
**Key Points / Main Content**
* **Group of Ministers:**
* No proposal to constitute a new Group of Ministers to address initial revenue losses incurred by states due to GST rate rationalization is currently under consideration.
* **Kerala's Concerns:**
* The Finance Minister of Kerala observed that the consumption pattern in Kerala causes a higher proportion of consumed items to attract a higher tax rate.
* The State of Kerala estimates a potential revenue loss of approximately Rs. 2,500 crore annually from automobiles, insurance, cement, and electronics sectors due to GST rate rationalization.
* The total annual revenue loss for Kerala is projected to be more than Rs. 8,000 crore.
* **Government Estimates:**
* The projection of items moving from the 28% to the 40% tax bracket is expected to generate approximately Rs. 45,570 crore in additional revenue.
* The overall GST rate rationalization is expected to result in a net negative revenue implication of approximately Rs. 93,300 crore.
* The combined impact of the above factors is estimated to result in a net negative impact of about Rs. 47,700 crore.
* The figures should not be regarded as definitive, as tax collection is not static, and lower rates are likely to improve compliance and reduce disputes.
**Impact Analysis**
**Stakeholder: State of Kerala**
* **Impact:** The state anticipates significant revenue losses due to GST rate rationalization, particularly affecting key sectors like automobiles, insurance, cement, and electronics.
* **Action Required:** Kerala needs to consider the government's estimates and revise its revenue projections accordingly.
**Stakeholder: Central Government (Ministry of Finance)**
* **Impact:** The Ministry faces the challenge of addressing potential revenue shortfalls due to GST rate rationalization while balancing the need for simplified tax structures and improved compliance.
* **Action Required:** The Ministry needs to monitor revenue trends closely and potentially adjust tax policies or consider alternative measures to mitigate potential revenue losses.
**Stakeholder: Goods and Services Tax (GST) Council**
* **Impact:** The document states that the GST Council is unlikely to constitute a new Group of Ministers to address concerns about revenue losses due to GST rate rationalization.
* **Action Required:** Given the absence of a newly formed Group of Ministers, the Council will still need to address the impact of rationalisation on state revenues.
Key Entities Referenced
Goods and Services Tax Council: A council responsible for decisions relating to the Goods and Services Tax (GST) in India, including rate rationalization.
Ministry of Finance: The Indian government ministry responsible for finance and revenue, and the ministry to whom the question is addressed.
Kerala: Indian state raising concerns about revenue losses due to GST rate rationalization.
Government of India
Ministry of Finance
Department of Revenue
LOK SABHA
STARRED QUESTION NO. *216
TO BE ANSWERED ON MONDAY, DECEMBER 15, 2025/AGRAHAYANA
24, 1947 (SAKA)
REVENUE LOSSES TO STATES DUE TO GST RATIONALISATION
*216. SHRI V K SREEKANDAN:
SHRI S VENKATESAN:
Will the Minister of Finance be pleased to state:
(a) whether it is a fact that Goods and Services Tax Council is likely to constitute a new Group
of Ministers to address the issues of initial revenue losses incurred by the States due to the rate
rationalization under the GST reforms, if so, the details thereof;
(b) whether it is a fact that the State of Kerala has expressed concerns about severe revenue
losses due to the rate rationalization implemented in September 2025, if so, the details thereof;
(c) whether it is a fact that Kerala could face an annual revenue loss of Rs.8,000 – 10,000 crore
due to the GST reforms;
(d) whether it is a fact that as per the Government's estimate the gross revenue loss is likely to
be Rs.93,000 crore, which will be partially compensated by additional revenue of Rs.45,000
crore due to shift in goods from 28 percent slab to 40 percent; and
(e) if so, the details thereof?
ANSWER
THE MINISTER OF FINANCE
(SMT. NIRMALA SITHARAMAN)
(a) to (e): A statement is placed on the Table of the House.
****Statement referred to in reply to the LOK SABHA Starred Question No. 216 raised by
Shri V K Sreekandan & Shri S Venkatesan for 15th December, 2025 on “Revenue losses
to States due to GST Rationalization”
(a) At present no such proposal is under consideration
(b&c) During the 56th meeting of GST Council, the Hon’ble Finance Minister of Kerala
observed that the consumption pattern in Kerala is such that majority of the items consumed
attract a higher rate of tax. Therefore, the revenue loss to the state on account of the rate
rationalization is likely to be relatively higher.
It was further stated that the State of Kerala had undertaken its own estimates of the potential
revenue loss arising on account of GST rate rationalisation by focusing on four sectors -
automobiles, insurance, cement and electronics. As per their estimates, from these sectors, the
State expected to lose around Rs. 2,500 Crore annually and the total annual revenue loss is
likely to be more than Rs. 8,000 Crores for Kerala.
(d & e) Based on the data of consumption patterns and entire value chain for the period 2023-
24, the items that moved from the 28% to the 40% tax bracket are projected to account for
additional revenue of approximately Rs. 45,570 Crore. The broader rate rationalization
initiative is expected to lead to a revenue implication of around Rs. 93,300 Crore of net
negative.
Taken together, these two figures are likely to result in about Rs. 47,700 Crore of net negative.
However these figures should not be viewed as definitive since tax collection is not static and
there is buoyancy. Moreover, lower rates are likely to lead to improved compliance and fewer
disputes.
*****