Revenue concerns keep auto out of GST rate cut ambit
NEWDELHI: The Goods and Services Tax (GST) Council wants items of regular consumption currently in the 28% tax bracket to be “progressively” brought to 18% slab, but levies on automobile sector could not be reduced at its last meeting despite “strong” proposals because of huge revenue implications, two persons aware of developments said on condition of anonymity.
All decisions of the council have been taken by its members “unanimously” and while doing any rate reduction, it is “very sensitive” about the revenue implications, they added.
GST Council is headed by the Union finance minister and finance ministers of states are its members.
Tax on automobiles could not be reduced to 18% from existing 28% at the 37th meeting of the council because many members were unwilling to take a hit of about ₹60,000 crore annual revenue loss, the persons said. It was proposed to reduce GST on automobiles to counter the slowdown in the auto sector.
Domestic car sales have been declining for 14 consecutive months, according to data compiled by the Centre for Monitoring Indian Economy until August 2019. India’s largest carmaker Maruti Suzuki reported a 27% annual decline in domestic car sales in September.
The persons quoted above said all GST rate cuts in the past were undertaken after sufficient deliberations and with an understanding that they would eventually help boost the revenue growth by expanding the tax base. “The rate rationalization approach of GST has been extremely calibrated and as per agreed philosophy,” one of the two persons said.
The person added that the drop in the GST revenue is not because of rate cuts as after the Lok Sabha election in April-May this year. Rates have only been reduced on items like electric vehicles where the revenue implication is very small.
Earlier, even after rates cut revenue grew. “As far as the rate cuts are concerned, most of the rate cuts happened during 2018. It may be noted that during the period from November 2018 to March 2019, GST revenues have seen a growth rate of 14%. It is only after May 2019 that lower growth rates of the level of 5% are being observed,” the person said.
Persons quoted above said current reduction in revenues can be attributed to a cyclical slowdown in certain key sectors like the auto sector, which is a major contributor to the GST
THE GST COLLECTION IN SEPTEMBER THIS YEAR FELL 2.67% TO ₹91,916 CRORE COMPARED TO THE SAME PERIOD LAST YEAR
revenues. In addition, August has seen widespread rainfall in various parts of the country, including major economic centres like Mumbai, which disrupted economic activity and movement of goods for a significant number of days.
The GST collection in September this year fell 2.67% to ₹91,916 crore compared to the same period last year. September’s GST collections are the lowest since February 2018. According to government data, the gross monthly collection slipped below ₹1 lakh crore for the two consecutive months. The tax collection in August 2019 was ₹98,202 crore.
“The council has been aware of the fact that the standard rate of GST is 18% and commodities of regular consumption in 28% rate bracket should be progressively brought to 18% rate slab keeping in view the revenue trends,” the first person quoted above said.
Kerala finance minister Thomas Isaac criticized the GST administration on Wednesday. “Record low GST collection is not only a reflection of the economic slowdown but also the mess in GST administration. What compliance can you expect when even first annual return is yet to be filed? And also rates have been continuously slashed to less than revenue-neutral levels,” Isaac tweeted on October 2.
The second person quoted above said Kerala has been deeply involved in shaping up of the GST regime and its decisions since 2013.