GST rates may be hiked on low-tax products after Assembly polls

Faced with a revenue crunch and an ambitious target for the current fiscal, the government is said to be mulling an upward revision of GST rates on the goods in the lowest tax slab of 5 per cent while also levying the tax on hitherto untaxed items and services, a media report said.

In the last financial year, the Goods and Services Tax (GST) collections by the Centre missed the budgeted target by a whopping Rs 1 lakh crore. In September, the GST collection slipped to a 19-month low of Rs 91,916 crore. The Union government has set GST collection target for FY20 at Rs 6.6 lakh crore.

However, any change in the tax rates would only come after the October 21 Assembly elections in Maharashtra and Haryana. The BJP has governments in both the states.

The ‘Business Standard’ quoted a source in the Union Finance Ministry that an internal assessment was being done to decide as to what items and services could be brought under GST and on what items/services the tax rate could be increased.

“The study is being done because revenue growth has weakened, and the primary reason is that many value chains are not yet under the GST net,” the newspaper quoted a Finance Ministry official as saying.

The Narendra Modi government’s decision to dip into the Reserve Bank of India (RBI) contingency funds and withdraw RS 1.76 lakh crore in August had drawn flak from several quarters with economists and experts terming the move as “unprecedented”.

So much so that former RBI Governor Urijit Patel is said to have resigned amid differences with the government over the issue. Patel was reportedly against the central bank transferring any extra funds to the government than what it was already giving, arguing that the contingency fund was crucial for the RBI functioning.

To the common man, it was clear that the government’s financial health is not fine and it desperately needed funds to tide over fiscal deficit and the revenue shortfall.

The goods and services to be included under the GST net or the rate hike will have to approved by the GST Council that has representation from the states as well.

The Council's Fitment Committee which comprises revenue officials of both Centre and states last month rejected any rate reduction for biscuits, bakery products, breakfast cereals, fruits and vegetables, mineral water, packaged food items etc.

It also dismissed the automobile industry’s demand for reduction in tax rate from the present 28 per cent to 18 per cent, as the Committee felt the rate cut would hurt the collection as auto sales contribute almost Rs 50,000-60,000 crore to the total GST kitty.

On Friday, Finance Minister Nirmala Sitharaman said that there is no going back on GST now even if the system has several flaws.

“We just can't damn GST now. It has been passed in Parliament and in all state Assemblies. It might have flaws, it might probably give you difficulties but I am sorry, it is the 'kanoon' (law) of the country now,” she said during an interaction with businessmen, traders and entrepreneurs in Pune.

The government has also formed a committee comprising senior officers of the GST Council and GST Commissioners of the states to suggest measures to augment GST revenues, improve voluntary compliance, changes needed in the law and the effective use of data analytics to detect tax evasion, as also the ways to expand the tax base.

Last month, the government again drew criticism from some economists over lowering corporate tax to 22 per cent from 30 per cent while for new manufacturing companies it was cut down to 15 per cent from 25 per cent, with government absorbing a Rs 1.45 lakh crore hit, apparently to boost growth in a slowing economy.

The move spiked the tanking stock markets just ahead of Prime Minister Narendra Modi’s much publicised ‘Howdy Modi’ event in Houston, US. However, the euphoria lasted barely for two days before things came back to what they have been for the last several quarters -- gloomy.