Govt may not heed calls to lower GST

Hindustan Times (Jalandhar) - - HTBUSINESS - Ra­jeev Jayaswal ra­jeev.jayaswal@htlive.com

NEW DELHI: The govern­ment may not ac­cept in­dus­try de­mands to sub­stan­tially re­duce the Goods and Ser­vices Tax (GST) for six months to boost de­mand in the aftermath of the coronaviru­s dis­ease (Covid-19) pan­demic. The ex­emp­tion would block in­put-tax credit that would have an ad­verse im­pact on busi­nesses and may not re­sult in any sig­nif­i­cant gain to con­sumers, two fi­nance min­istry of­fi­cials said on Tues­day.

In­put tax credit re­duces the tax paid on in­puts from taxes to be paid on out­put of fin­ished goods.The pro­posed GST ex­emp­tion will make out­put tax zero, block­ing the in­put-tax credit, which will add to the cost of the fin­ished goods, the of­fi­cials with di­rect knowl­edge of the mat­ter said, re­quest­ing anonymity.

“This will not only be in­ju­ri­ous to the in­dus­try but also to the con­sumer at large and this is cer­tainly not go­ing to re­vive de­mand,” one of the of­fi­cials said.

GST is an in­te­grated levy of in­di­rect taxes and the main source of rev­enue for both the Cen­tre and state gov­ern­ments. It makes up about one-third of to­tal tax re­ceipts. Over 70% of the GST rev­enue ac­crues to the states as their own share of the re­ceipts and funds de­volved on them by the Cen­tre.

De­mand gen­er­a­tion looms as a ma­jor chal­lenge af­ter the Covid-19 lock­down is lifted and a sub­stan­tial re­duc­tion in GST rates could stim­u­late de­mand, some in­dus­try as­so­ci­a­tions have ar­gued. Ni­ran­jan Hi­ranan­dani, pres­i­dent of the As­so­ci­ated Cham­bers of Com­merce and In­dus­try of In­dia (As­socham), has pro­posed a cut in GST rates on al­most all prod­ucts by 50% for six months to boost de­mand.

Re­spond­ing to the fi­nance min­istry of­fi­cials’ com­ments, Hi­ranan­dani said on Tues­day: “In the­ory, yes – lost in­put tax credit (ITC) on ex­emp­tion from GST is an is­sue of con­cern...”

He added: “It has to be viewed from the per­spec­tive of in­cen­tiviz­ing con­sumers by in­duc­ing them to make a pur­chase, lead­ing to the con­sump­tion which is the need of an hour. The ar­gu­ment is that a cut in GST for a short term, say next six months, will re­duce the amount paid for the good or ser­vice, so the con­sumer will buy more and thereby, re­vi­tal­ize the econ­omy. It is a sim­ple is­sue of re­duc­ing (not ex­empt­ing) GST, so that con­sumers go ahead and buy – in the present, dur­ing the pe­riod of re­duced GST rather than keep wait­ing for some other day to do so.”

The logic is that de­mand gen­er­a­tion needs GST cuts. he said. “The as­pect of ITC can be dealt with so long as the sug­ges­tion is taken in the proper per­spec­tive.”

Ex­perts coun­selled the govern­ment to adopt a cau­tious ap­proach. “There does not ap­pear to be any em­pir­i­cal ev­i­dence that any coun­try has ex­empted GST/VAT [val­ueadded tax] across the board in or­der to drive up the pan­demic-im­pacted economies. There could be spe­cific sec­tors/ar­eas where there may be a need to ra­tio­nalise the GST rates for a tem­po­rary pe­riod to as­sist the sec­tor. This needs be done very cau­tiously en­sur­ing that rev­enue losses are min­imised, leak­ages are avoided and the re­duc­tions do not lead to emer­gence of in­verted duty struc­ture sit­u­a­tions,” said MS Mani, part­ner at Deloitte In­dia.

In­verted duty struc­ture is a sit­u­a­tion in which in­puts are taxed at a higher rate than fin­ished goods. Ab­hishek Jain, tax part­ner at con­sult­ing firm EY, said a GST ex­emp­tion would en­tail break­ing of the credit chain, higher in­put tax costs for busi­nesses and com­plex­i­ties in com­pli­ances with credit tran­si­tions dur­ing tax­able and ex­empt-tax pe­ri­ods. “A spec­i­fied per­cent­age GST rate re­duc­tion could be ex­plored vis-à-vis a NIL rate/ ex­emp­tion by the govern­ment specif­i­cally for the se­verely im­pacted sec­tors. In a sce­nario, where the said rate re­duc­tion en­tails ac­cu­mu­la­tion of cred­its, the govern­ment should en­sure full re­fund of the cred­its so ac­cu­mu­lated with faster pro­cess­ing of such re­funds,” he said.

Pratik Jain, part­ner and leader of the in­di­rect tax prac­tice at PwC In­dia, sug­gested making GST con­ces­sions an ex­cep­tion for in­dus­tries such as air­lines that have borne the brunt of the fall­out of the Covid-19 crisis.

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