Amid increased pressure from the industry to reduce GST rate to boost demand for products like automobile, the government is assessing the impact on revenues if GST rate is reduced for some products. The GST Council, that decides GST rates, will have its next meeting on September 30 in Goa.
Currently, items like automobile, tyres, cement, air conditioners and large LCD televisions are in the 28% bracket. Automobiles also bear a cess, depending on the size of the vehicle, which increases the total tax incidence further.
According to a report in a leading business daily, the fitment panel is expected to meet shortly to consider suggestions given by some states as well as industry. The fitment panel comprises central and state officials.
“Issues are being examined in detail… Numbers are also being looked at,” the daily quoted an unnamed govt official as saying. According to the publication, some states favour GST rate cut for the auto and cement sector to boost demand for the products. Some state policymakers are of the view that a more radical view of the rate structure needs to be taken, for instance merging the 12% and 18% slabs into one.
The daily said while Punjab and West Bengal are in favour of reducing GST for automobile to help revive the economy, Kerala is opposing any such moves.
Worth mentioning here is that the Indian economy grew at 5% in the April-June quarter, a 25 quarter low. Private consumption expenditure slowed to 3.1%, an 18-quarter low, while manufacturing grew 0.6%. The auto sector, which is currently witnessing its worst-ever slowdown in a decade, contributes nearly 50% to the manufacturing output. So revival of the sector is crucial to boost economic growth and achieve the govt’s $5 trillion economy target.
So far, private consumption has been supporting GDP growth. But with private consumption expenditure falling to 3.1%, any revival plan hinges on Indians loosening their purse strings during the festive season, which is when the bulk of sales take place traditionally.
Tax experts say a reduction in GST rate does not necessarily lead to a reduction in collections as they stoke demand as well. “Given the economic slowdown, there is certainly a case for reduction in rates for a few sectors such as auto,” the business daily quoted Pratik Jain, national leader, indirect taxes, PwC, as saying. “This has been done in the past and worked more often than not. Of course, this has to be backed up with other economic stimulus (measures) as well,” he added.
For sectors such as real estate and railways, where input tax credit is restricted, there is a case for reduction in rates on key inputs, he said.
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