GST council reviews rates, items to raise revenue

NEW DELHI: The government has begun discussions with states for a possible revamp of the goods and services (GST), which may include bringing a few exempted items under the levy while reviewing the rates and the cess on all goods and services, as part of an exercise to shore up revenue.

In a letter to states, the has given a full menu of options and suggested their feedback ahead of a meeting of ministers expected before the end of the month. The move comes at a time when tax collections have been hit, which authorities believe is due to a massive reduction in rates. The RBI had recently estimated that the effective in India has come down from 14.4% in May 2017 to 11.6% now.

Buoyed by festival demand and better compliance, goods and services tax (GST) collections rose 6% in November to top Rs 1.03 lakh crore — the highest since April. Monthly collections in November were the third highest since the transition to the new indirect tax regime in July 2017.

Officials said this has robbed the government of potential revenue of around Rs 2 lakh crore annually and also increased compensation payout to states as the Centre had assured them to make good on any “losses” in case collection growth was less than 14% a year. The economic slowdown, along with tax leakage, has added to the government’s woes and the growth has been lower than anticipated despite an expansion in taxpayer base.

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GST revenue collection crossed the Rs 1 lakh crore mark after a gap of three months in November with the revenue growing by 6% to Rs 1.03 lakh crore in the month. The GST collection was Rs 95,380 crore in October while it was Rs 97,637 crore November 2018.

“The effective indirect tax rate on many products in the pre-GST era was around 25%, which has reduced to 18% in GST. In the absence of a significant increase in volumes, there would be an impact on revenues,” said M S Mani, a partner at consulting firm Deloitte India.

GST on cars, colas, tobacco may be raised

Another tax consultant said the services sector revenue has not seen a significant expansion in the base as investments have slowed down. As a result, the GST council has asked states to review the list of products that are currently exempted, which includes some of the items that were earlier subject to tax.

With states complaining about the Centre holding up compensation, the government is also seeking a review of the items that can face the levy apart from looking at the possibility of enhancing the levy on existing items like tobacco, soft drinks and cars.

With the compensation cess kitty eroded, states have little choice but to either agree to settle their bills over a longer period than the five years that was provided for or agree to higher cess or expanding its scope, said officials.
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