The council also decided to review the taxation of the real estate sector and consider if small services industries could be brought under the benign tax composition scheme.
The Goods and Services Tax Council on Saturday cut the tax rates on 23 commonly used items, including TV screens, movie tickets and power banks, but deferred a tax cut on cement owing to its huge revenue implication. The move was in line with the policy of reducing the tax rates to boost compliance and consumption and giving a leg-up to industries hamstrung by high input costs. The rate cuts would be effective from January 1, 2019. The revenue impact of the latest rate cuts, the fifth round of rate rationalisation undertaken by the council since the GST’s July 2017 launch, is estimated to be Rs 5,500 crore a year. It is not immediately clear whether and how much of the relief would be passed on to the consumers by the manufacturers, but analysts said given a slowdown in consumption, many of the items that saw tax cuts could become cheaper.
The council also decided to review the taxation of the real estate sector and consider if small services industries could be brought under the benign tax composition scheme. The rate reductions are also seen to be driven by political considerations. The election-bound Narendra Modi government is keen to pander to the small industries, which have borne the brunt of GST and demonetisation. The council trimmed the 28% slab by bringing down the tax rate on seven items in the highest tax bracket, thereby leaving only 28 items, mostly “luxury and sin goods”, in the slab. The rates of 16 other items have been cut from 18% to 12% or 5%.
The 28% slab originally consisted of 230 items. “The 28% bracket is gradually moving to sunset… The next target will be rate rationalisation in cement as and when affordability improves,” finance minister Arun Jaitley said. Apart from cement, certain auto parts also continue to attract 28% rate. The government has made it clear that its objective is to move towards a simpler two-slab GST structure of standard and merit rates, although a senior former government functionary said recently this could materialise only in the fifth year from now. A report by the country’s largest bank, State Bank of India, estimated that federal and state governments could face a shortfall of about Rs 90,000 crore in GST tax collections in the current fiscal year against the target of Rs 12.9 lakh crore.
Despite the GST revenue shortfall, Jaitley reiterated the Centre’s fiscal deficit target of 3.3% of GDP for the current fiscal would be met. “At the stage, when we are looking at the (revenue) target, indirect tax is a little behind the scheduled direct tax, the direct tax is ahead of schedule. Our non-tax revenue also seems to be moving ahead fairly well. At the moment, the government is quite optimistic that we will be able to meet fiscal deficit target,” Jaitley said. As per the latest data, the fiscal deficit in the April-October period stood at 103.9% of budget estimates.
Dispelling feaRs of a major impact on revenue collection, revenue secretary Ajay Bhushan Pandey said the loss of Rs 5,500 crore is for the entire fiscal, so for the three months it would be one-fourth of this. This shortfall would be more than met by measures to improve tax compliance through various means, he added. According to Jaitley, tepid growth in revenue from service sector was the main reason for the lower-than-expected revenue GST collection in the first eight months of the fiscal. He said competition in the telecom and aviation sector had an adverse e impact on GST collection from these sectors. “However, the government cannot do much about this,” Jaitley said. The minister added that absence of a composition scheme for small service providers was keeping these entities out of the GST net for fear of 18% tax. The council constituted a committee of state finance ministers to study if composition scheme could be extended to these entities.
Further, a separate committee was constituted to study the taxation in the real estate sector where houses under construction are covered under a 12% GST, but the transfer of owned hip of built houses was outside the tax’s purview. The tax differential, according to Jaitley, was responsible for buyeRs ’ reservations in such houses leading to a slowdown in real estate sector. The GST council, in its January meeting, would consider the committee’s report. The report of another ministeRs ’ committee formed earlier on providing relief to micro, small and medium enterprises as well as examine the feasibility of cess for funding natural disasteRs would also be taken up in the next meeting.
Moreover, the council constituted a seven-member ministeRs ’ panel to study the revenue trend, including analysing the reasons for structural patterns affecting the revenue collection in some of the states. The study would include the underlying reasons for deviation from the revenue collection targets vis-a-vis original assumptions discussed during the design of GST system, its implementation and related structural issues. Further, the council also approved simplication in the return-filing process. It approved a single cash ledger for each tax head as against at least 20 or so currently, Pandey said. He said the new simplified return-filing system would be launched on trial basis from April 1. To alleviate the problems of exporteRs in getting refund, the council decided to launch a pilot scheme for constituting a single authority for disbursing refunds, Pandey said.