GST CUT TO TRIM INDIA REVENUE BY 150b RUPEES
Move to cut GST on 50 items raises prospect of country missing budget goals again this year
INDIA’S move to slash levies on more than 50 goods will lower revenue by as much as 150 billion rupees (RM8.94 billion) each year and is raising the prospect of the country missing budget goals again this year.
A panel of federal and state finance ministers late on Saturday cut the Goods and Services Tax (GST) on items from washing machines and lithium iron batteries to stone-carved deities and sanitary napkins as Prime Minister Narendra Modi looks to boost sentiment and growth before he faces re-election next year.
The revenue loss would be minimal, said interim Finance Minister Piyush Goyal.
The decision could result in a revenue loss that’s as high as one per cent of tax budgeted to accrue to the federal government, according to officials.
The estimated loss in revenues comes at a time when India needs to keep its budget deficit in check as Modi prepares to ramp up spending on welfare programmes from health to farming before general elections next year.
The government has already widened its deficit goal for the current fiscal year to 3.3 per cent of gross domestic product from three per cent, putting pressure on bond yields.
“It may not be the most marvelous move for the overall budget, but it is not a bad deal either if overall collections pick up for the government,” said Indranil Pan, chief economist at IDFC Bank Ltd in Mumbai.
“These rates were expected to come down and have been advanced because of the election cycle.”
The new GST rates are effective on Friday and the panel will meet again on August 4 to discuss issues faced by small businesses.
GST, touted as one of the biggest reforms of the Modi government, replaced a myriad of levies with a nationwide sales tax. Its introduction was marred by glitches and business disruptions.