- The GST Council, at its meeting next week, will consider multiple options to boost revenues such as more items under cess and the restructuring of rates.
- This is going to be first meeting to consider an increase in GST tax rate.
- To impose cess on more items would not be difficult as this levy is imposed on items in the highest 28 % slab, which are considered as luxury or sin goods.
- Council has asked the officials from states to come up with suggestions on rates, the cess on various items.
- This suggestions will be reviewed at the upcoming meeting.
- However, increase in GST rates could create a situation of panic and lead to economic instability.
- The council highlighted the fact that proceeds from cess levied on items such as tobacco and automobiles, will not be sufficient to compensate the states for any shortfall in revenue.
- Compensation cess proceeds, levied on luxury and sin goods, used to reimburse states for any losses incurred in the first 5 years of GST.
- At present, States have complained they have not received the compensation cess from the central government, which is impacting their finances.
- After two months of negative growth, GST revenues witnessed a recovery with collections rising 6 % in November.
- Even after that, GST revenue during the year are still below estimates.
- The government has tried all the options to raise revenue but the government’s move to raise GST rates could push economy into recession.
- After giving corporates tax, a break, which cost economy of around ₹1.45 lakh crores, the government estimated that raising GST rates would bring in an extra ₹1 lakh crores in a year.
- Finance Minister Nirmala Sitharaman indicated that they are considering to reduce income tax rate in the upcoming budget.
- An increase in GST rates may be necessary considering the fact that state government might take legal action against centre over non-payment of due compensation.
- The monthly compensation bill due to state would cross ₹20,000 crores in the coming months.
- This could push government into fiscal deficit.
- The government might not complete it’s fiscal deficit targets this year unless the government lowers their expenditure.
- As we move forward, We can expect spending cuts across other schemes.
- The government is under stress and now seems to be trying to recover this shortfall in direct taxes by raising more money through GST.
- Currently, Agriculture grown about 2 %, no real increase in rural wages and 0.1% negative growth in the industry.
- Raising the base rate from 5% to 9 to 10% would be big trouble for middle class people as branded atta and even hotels that cost ₹1000 per room-night will come under a higher GST bracket.
- This would mean that consumption of goods and services would cost more.
- The Finance Minister tried to relax situation by reducing Corporate Taxes and promised more jobs only when consumption revives.
- So everything might get little expensive for a while with no effective solution of raising economy.
