Thiruvananthapuram: As part of the ongoing GST reforms, the Central Government is proposing substantial tax reductions. One recommendation is to lower the GST on cars with engine capacity below 1,800 cc from 28% to 18%. It is also suggested that a uniform 5% GST would suffice for all food items and textiles, which currently fall under various tax slabs.

The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, is scheduled to finalise the new tax rates during its meeting on September 3 and 4. The reform of the tax structure is being welcomed by the business and trade sectors. If these reductions benefit consumers directly, product prices could drop remarkably. However, if only the tax is reduced without a corresponding decrease in retail prices, it would merely result in revenue loss for the states.

States, including Kerala, have requested the Centre to ensure protection of state revenues. Small cars may also see a reduction in various cess components. If these proposed rates are approved, vehicle prices could fall substantially.

There is strong opposition to the current 18% GST levied on insurance. In this context, the Centre is considering exempting term insurance and health insurance from GST.

Kerala’s concerns

Kerala’s GST Department estimates an annual revenue loss of ₹1,000–1,200 crore from the vehicle market alone due to tax reductions. The estimated loss from the insurance sector is around ₹500 crore, while reduced GST on electronic products could also result in a ₹500 crore loss. Although lottery GST has been raised from 28% to 40%, this too could lead to revenue loss for Kerala.

In total, Kerala anticipates a revenue shortfall of up to ₹10,000 crore across all sectors combined due to the proposed GST changes.

Final decisions on all these matters will be made by the GST Council.

In addition, a reduction in cement GST from 28% to 18% is under consideration, along with a similar cut for products like refrigerators and air conditioners. However, for items such as lotteries and cigarettes, the Centre has recommended maintaining a 40% GST rate.