Amid concerns of an economic slowdown, the first GST Council meeting under the re-elected Modi government may look at further pruning the highest tax slab of 28 per cent, which currently comprises 28 goods. In December, the council had cut rates on 23 items effective from January 1, 2019 , including seven from the top bracket leaving mainly luxury and sin goods – apart from automobiles and cement – in that category.
The upcoming GST Council meeting is scheduled for June 20, two weeks ahead of the budget presentation by Finance Minister Nirmala Sitharaman. Worried that the ongoing GDP growth deceleration may pick up pace, some states are favouring a reduction in tax rates and have communicated their concern to the Centre, The Economic Times reported.
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The RBI’s latest June monetary policy revises the growth rate downwards to 6.4-6.7 per cent till September, although it is expected to pick up pace to as much as 7.5 per cent in the second half of the fiscal. This comes on the back of a worrying Q4FY19, which saw the lowest growth rate of 5.8 per cent in the past five financial years.
“Something needs to be done urgently – demand slowdown is quite visible,” a senior government official with a state government that’s likely to press for a reduction in tax rates told the daily. The official pointed out that jobs are already getting impacted and the slowdown may get further difficult, if nothing is done.
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Most consumer goods companies reported a hit in March quarter earnings, mainly on account of a rural slowdown and weak consumer sentiment, according to an analysis by Edelweiss. In order to revive the economy, the RBI last week cut repo rates for the third consecutive time – now down to a nine-year low – and changed its stance to ‘accommodative’.
Further reducing the number of goods incurring the highest GST rate may also spur demand. Consider automobiles, for instance. Apart from a 28 per cent GST rate, the category also faces a compensation cess, depending on size and segment. A lowering of rates will reduce prices and possibly encourage consumers to loosen their purse strings.
Passenger vehicle sales grew by just 2.7 per cent in FY19. The slowest in five years and have actually declined for six consecutive months. Maruti Suzuki India, the country’s largest car maker, recently reported 22% decline in the auto sales numbers for May. Tata Motors reported a 26 per cent decline. There have also been reports of automobile dealers shutting due to tepid sales.
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“Many dealers have been facing the issue of accumulated input credit due to post-sale discounts and slow movement of inventory,” Pratik Jain, national leader, indirect tax, PwC, told the daily. He added that there is a case for reduction in GST rates to spur demand, particularly for small and environment-friendly cars.
While the final decision on pruning the GST rate slab on June 20 would logically depend on the revenue position, the buzz is that the state of the economy will take primacy as a longer slowdown will, in any case, impact revenues.
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GST revenue collections crossed Rs 1 lakh crore for the third straight month in May to Rs 1,00,289 crore. Although it was lower than all-time high of Rs 1.13 lakh crore in the month of April. July 1 will mark the second anniversary of the new, comprehensive indirect tax regime.
