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GST council meet on Wed, set to focus on falling collections, rate hike

With the revenue shortfall looming large, there have been suggestions for raising GST rate and cess to meet the gap

Press Trust of India  |  New Delhi 

Finance Minister Nirmala Sitharaman
Finance Minister Nirmala Sitharaman at the first pre-Budget consultation with representatives of the financial sector, in New Delhi | PTI

The Council will meet on Wednesday to review the taxation structure for shoring up the revenue as lower-than-expected collections has led to a delay in compensation payment to states.

Some of the states such as West Bengal have opposed any hike in cess rates or rate calibration amid a slowdown in the economy, stating that consumers as well as the industry are passing through a distressing time.

With the revenue shortfall looming large, there have been suggestions for raising rate and cess to meet the gap.

The Council headed by Finance Minister Nirmala Sitharaman had sought suggestions from states on review of GST and compensation cess rates on various items, rate calibrations for addressing the inverted duty structure, compliance measures other than those currently under implementation to augment revenue.

In a letter to Sitharaman, West Bengal Finance Minister Amit Mitra said states have received letter from the GST Council wherein suggestions have been sought on review of items currently under exemption for shoring up GST revenues.

"This is indeed alarming. We should not in any way tinker with the rate structure or impose any new cess at a time when the industry and consumers are going through the most distressing times with 'stagflation' knocking at our door (stagnation accompanied by growing inflation)," Mitra said.

Many economists, including former RBI Governor Raghuram Rajan, have expressed fear of India getting into a slow growth high inflation or stagflation mode.

Rising food prices pushed retail inflation in November to an over three-year high of 5.54 per cent, while industrial sector output shrank for the third month in a row by 3.8 per cent in October, indicating deepening slowdown in the economy.

India's economic growth slowed to a 6-year low of 4.5 per cent in the July-September quarter. With inflation rising, fears of stagflation -- a fall in aggregate demand accompanied by rising inflation -- have resurfaced.

"Instead of increasing or imposing new taxes or cesses the GST Council has to collectively find ways and means to provide relief to industry so that they are able to tide over the present crisis...the solution of additional resource mobilisation lies not in tinkering with the rate structure but focus on anti evasion and fraud detection measures," Mitra said.

Facing heat over delay in payment of GST compensation, the central government on Monday released Rs 35,298 crore to states to make up for the loss of revenue due to rollout of the Goods and Services Tax (GST).

When GST was rolled out on July 1, 2017, states were through legislation promised to be compensated for the loss of revenue as not just their taxes such as VAT were being subsumed in the new levy but also their right to levy taxes was being snatched.

The compensation amount was fixed at 14 per cent on top of revenue in the base year of 2016-17. The corpus for paying compensation was collected by levying a cess on top of GST rates on tobacco products, cigarettes, aerated water, automobiles, and coal.

The Central GST collection fell short of the Budget Estimate by nearly 40 per cent during the April-November period of 2019-20, according to government data.

The actual CGST collection during April-November stood at Rs 3,28,365 crore, while the Budget Estimate was Rs 5,26,000 crore for these months.

According to sources, the Finance Ministry has set a Rs 1.1 lakh crore monthly GST collection target for the remainining four months of 2019-20 financial year

Revenue Secretary Ajay Bhushan Pandey had a video conference meeting with top tax officials and impressed upon them to step up measures to achieve direct and indirect tax collection targets.

Officers have been particularly urged to ensure that during field enforcement drive and visits, no taxpayer is overreached or troubled, the source said.

First Published: Tue, December 17 2019. 16:40 IST
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