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GST Council may lower levies on auto, biscuits

Upcoming 37th GST council meeting on 20th September may bring a big relief for the Auto and FMCG (biscuit) sector.

The Goods and Services Tax (GST) Council is likely to reduce the GST rates. It could also discuss raising the lowest slab of 5% to as much as 8%. That could set the ball rolling for a major revamp of GST structure as part of efforts to revive growth.

A senior government official said “These proposals will be placed before the council,”

Last week a meeting held between the state and central government officials committee only discussed the possible revenue impact of a rate cut on automobiles. However, the GST Council will take a final call on the matter in the Goa council meeting next week.

Demands raised by Auto sector and FMCG:

The demand was placed by the automobile sector is to reduce the GST rates on passenger vehicles from 28% (current) to 18% (proposed). The auto sector, in addition to GST, also faces a compensation cess that ranges from 1% to 22%. Road transport and highways minister Nitin Gadkari has backed calls for lower GST on hybrid and other vehicles.

FMCG including Parle, Britannia and other biscuit makers have also asked for a reduction in GST from 18% to 12% to bring them on par with unbranded varieties.

Auto sector has faced a sharp sales fell 23.55% in August with dispatches in all segments, including passenger vehicles and two-wheelers.

If the GST Council agrees to cut down the rates for auto and biscuit than states may have to share some of the revenue loss that would accrue due to the reduction in the tax rate.

Alternatively, other avenues of generating revenue such as the restructuring of the 5% slab or raising the slab rate may have to be examined.

Some state governments have backed merging the 12% and 18% brackets as part of broader reform. The revenue position could prompt an early call on the matter.

As part of the GST framework, the Centre had agreed to compensate states for five years, if their annual revenue from GST rises less than 14%. According to GST laws, the compensation will be provided only from a fund where the cess is deposited.

The cess is aimed at compensating states with a large manufacturing presence that lost out when GST was introduced as the latter is a consumption levy. The cess so collected is distributed among such states

For FY19-20, the Centre has budgeted to collect close to Rs 1 lakh crore as cess on sin and luxury goods which turns out to be around Rs 8,000 per month. But the cess mop-up in August 2019 was Rs 7,273 crore.

Hence, it is likely that the actual cess collections could be lower than Rs 1 lakh crore.

Author: Niranjan Reddy

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