The government faces revenue impact to the tune of Rs 8,400 crore and Rs 12,000 crore annually if the GST is brought down to 18% for two-wheelers and cement, respectively.
Finance minister Nirmala Sitharaman will chair her first GST Council meet on Friday as the Centre-state body is likely to deliberate upon slashing rates for electric vehicles (EVs) and other two-wheelers, and extension of tenure of the anti-profiteering body by another year. Sources said the Council could also extend the deadline for filing annual return form (GSTR-9) in the face of difficulty faced by taxpayers.
Additionally, the Council in its 35th meeting would also consider granting approval for e-invoicing process that has been in the works since last month. The anti-evasion measure requires businesses to intimate a central portal at the time of issuing invoice to help the tax department keep track of transactions in real time.
The government faces revenue impact to the tune of Rs 8,400 crore and Rs 12,000 crore annually if the GST is brought down to 18% for two-wheelers and cement, respectively. Clearly, for the Centre, which has seen a huge GST revenue shortfall of Rs 1.6 lakh crore (against the original Budget estimate) and has set a daunting target of Rs 1.14 lakh crore/month for the current fiscal, rate cuts on these items are unaffordable.
Even a rate cut on EVs to 5% from 12% currently is frought with problems of inverted duty structure. “There is an inherent inverted duty structure as the GST input on raw material and other overheads are on average of 18% wherein the output is pegged at 12%. The proposed reduction of the GST on EVs to 5% will increase this delta. This structure results in significant working capital blockage,” Tarun Mehta, CEO and co-founder at Ather Energy, said.
Since November 2017, the Council has reduced the items in the 28% tax slab to about 30 from over 230 while also bringing several other items into lower slabs. It is estimated that Rs 80,000 crore a year in revenue has been forgone due to this exercise.
A need to spur consumption, given the slowing down of economic growth, is being flagged by those who advocate the GST rate reductions. Even though the Centre too shares this sentiment, its concerns over a tax revenue shortfall have, of late, intensified — the ask rate of gross tax revenue is now about 23%.
“States are comfortably placed as the GST Act assures them a 14% growth in GST revenue year-on-year for the first five years since the launch. However, the Centre is bearing the brunt of lower collections which will make it difficult to cut rates,” a finance ministry official said on condition of anonymity.
Besides, the Council will also consider extending the tenure of the National Anti-Profiteering Authority (NAA) by a year till November 30, 2020, as the authority continues to receive consumer complaints of profiteering against companies. The NAA came into existence on November 30, 2017, after its chairman BN Sharma assumed charge. So far, it has passed 67 orders in various cases.
Archit Gupta, founder and CEO of ClearTax, said: “Taxpayers are finding GSTR-9 filing to be challenging, the Council must look at their concerns, GSTR-9 must be put through a proper review. More clarity is required on how ITC claim will work during the transition phase of the new return forms being proposed. ”