GST rate cut: Here’s how much money Modi government sacrificed to make goods cheaper

By: | Updated: July 28, 2018 10:38 AM

Union Cabinet minister Arun Jaitley on Friday said that the government sacrificed Rs 70,000 crore in revenue collection due to the goods and services tax (GST) rate cuts for over 450 items (384 goods and 68 services) since the new indirect tax regime was implemented in July last year.

Union Minister Arun Jaitley, arun jaitleyUnion Minister Arun Jaitley

Union Cabinet minister Arun Jaitley on Friday said that the government sacrificed Rs 70,000 crore in revenue collection due to the goods and services tax (GST) rate cuts for over 450 items (384 goods and 68 services) since the new indirect tax regime was implemented in July last year. He also said it was only a matter of time before all items except luxury/sin goods are moved to lower tax brackets from the highest 28% slab currently.

Since state governments have been guaranteed a 14% annual GST revenue increase for the first five years, the burden of lower revenue collection has been borne entirely by the central government, Jaitley added.
Jaitley has chaired all but the latest GST Council meetings so far as finance minister. The 28th council meeting held last week was chaired by current finance minister Piyush Goyal, who replaced Jaitley as the latter is recuperating from a surgery.

The last council meeting approved rate cuts for 88 items including over a dozen items placed in the 28% tax slab, leaving around 35 commodities in the highest slab. The remaining items (under 28% rate) outside the luxury/sin goods category are cement, air-conditioners, large-screen televisions and a handful of others, Jaitley wrote in a blog. “With further expansion of revenues, these few items may also witness a change of category. Thus, within a record period of thirteen months, the GST Council has almost phased out the 28% category. It is only a matter of time that the final obituary of the ‘Congress Legacy Tax’ is written. Only the luxury-sin tax would remain,” he wrote.

Recalling the earlier rounds of rate cuts, Jaitley said that the council on November 10, 2017, approved rate cuts for 177 items in the 28% slab and another 15 items were brought to lower tax slabs on July 21 this year.

Explaining the pre-GST rate structure, Jaitley wrote that 235 items were in the 28% bracket when GST was rolled out as these items attracted nearly 31% tax in the earlier regime. “The pre-GST tariff was a Congress Party legacy. The standard rate for central excise plus VAT plus CST was 12% + 14% + 2%. To this, if the cascading effect of tax on tax was added, the eventual tax payable on a commodity was 31%,” Jaitley said.

The initial exercise of slotting items in various GST slabs (nil, 5%, 12%, 18% and 28%) was based on calculating pre-GST tax incidence by the fitment committee. The committee then fitted the items into the GST slab that was closer to its earlier tax incidence. However, the approach was abandoned in November last year as the council agreed that many daily-use items did not need to be in the highest bracket.

“There is no better opportunity for consumers to make purchases than in the environment which the GST has created. It is an opportunity to celebrate the biggest tax reform since Independence..,” Jaitley wrote.

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