Pruning taxes for products in highest GST slab

Goods and Services Tax (GST)
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June 13, 2019

India could review the goods and services tax (GST) structure to further prune the number of items in the highest slab of 28% as it attempts to stave off a slump in demand. Some states have favored a reduction in tax rates, worried that the slowdown may get entrenched, and have communicated their concern to the Centre. The first GST council meeting to be chaired by Nirmala Sitharaman may meet on June 20, 2019 ahead of the budget presentation on July 5, 2019. Below mentioned are some specific points which will be focused in the meeting:

Automobiles are placed in the 28% GST bracket.

Facing a compensation cess, depending on size and segment, a lowering of rates will reduce prices and possibly encourage consumers to spend. A final decision will depend on the revenue. the state of the economy will take primacy over this as a longer slowdown will in any case impact revenues. The Reserve Bank of India (RBI) cuts interest rates for the third time in succession to a 9 year low changing its stance to ‘accommodative’ amid burgeoning concerns on the growth front.

Most consumer goods companies reported a hit in March quarter earnings, mainly on account of a rural slowdown and weak consumer sentiment, according to an analysis by Edelweiss. Rural growth was down to about 1.1 times urban growth against 1.3 times in the preceding quarter. Consumer goods sales have remained sluggish.

Passenger vehicle sales dropped 17% in April and May was equally bad for most companies. The largest carmaker Maruti Suzuki reported 22% lower sales in May from the year earlier. There have been reports of automobile dealers shutting due to tepid sales, not just in the metros but also states such as Maharashtra and Bihar. The matter of accumulated credit in the auto sector is also focused in the GST meeting.

The GST Council could also take up a proposal on introducing electronic invoicing at its meeting, besides changes to the law. It could also discuss extension of the anti-profiteering framework, which can be carried out via a notification.

Since the launch of GST, the government has cleared a lot of misconception among tax payers about the new indirect tax law. GST is not a disruptive law but a transformational law. As the law is maturing, the industry, which initially had inhibitions and doubts is now voluntarily complying with the law reducing taxes would reduce rates encouraging consumers to spend more but the final decision will depend on the revenue position. Thus, the budget from GST perspective is likely to be around more of financial statistics, which will create a roadmap for further developments in terms of reducing the median rate of tax and also consolidating the present four tier rate structure. The suggestions given by the GST Council in their previous meetings could also be incorporated in the law for instance the threshold limit for opting composition scheme. There may be some changes in customs to drive investment and export also. This could, therefore can, arguably be the smallest budget for indirect taxes.

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