Frequent changes in GST rates upset calculation of GST collections: FM Sitharaman

During the 18th edition of Hindustan Times Leadership Summit, the union finance minister said calculations on taxation related issues, particularly GST rates, should be dealt with on yearly basis

Finance minister Nirmala Sitharaman on Friday signaled that the centre may push for limiting changes in Goods and Services Tax (GST) rates by the federal indirect tax body, the GST Council, to only once in a year instead of tweaking rates frequently as has been the practice in the past.

Speaking at the 18th edition of the Hindustan Times Leadership Summit, Sitharaman seems to suggest that apart from the economic downturn prior to and post the pandemic, the frequent tweaking in the GST rates adversely impacted revenue collections.

“Ideally, I have been requesting that the Council doesn’t in every one of its sitting, decide to change rates upwards or downwards. It actually upsets the calculation of your revenue generation. As a result states or centre planning that this year they expect so much to come from GST need to recalculate every three months after a GST council meeting. Like in the Budget, taxation related issues particularly (GST) rates can be dealt with once so that at least for the next 12 months can go on a predictable course. I am sure the council will not hesitate to discuss and take a call on this matter,” Sitharaman said.

The minister’s suggestion comes at a time when Central and state governments are struggling with acute financial crunch arising from the economic recession as well as frequent tax rate cuts in the past.

Experts however said frequent tax rate cuts in the initial years of GST roll out had helped in fine tuning the new tax system and in keeping it flexible, though it came at a cost to the exchequer. “While GST rate changes in the past signified the flexible approach adopted for taking care of the issues faced by businesses, there is a need to have a defined process and periodicity for future rate changes,” said M S Mani , Partner, Deloitte India

On the signs of economic recovery, Sitharaman said the current upturn in economic activity in last two months is not just pent up demand and recovery is likely to sustain coming months.

“I am not sure if just the pentup demand or festival demand can explain over ₹1 trillion collection in GST for past two months. Yes, this is the season when festive demand adds a bit more fervor to demand which prevails through in a year, but I also talk to industry leaders like in core sector industries such as cement, iron and steel, who are looking at capacity expansion. It is an indication that additional demand is what is coming in and is likely to sustain,” she added.

On rising inflation which has forced the central bank to pause its rate cut cycle, Sitharaman said she is not worried about the current high level of inflation as it is seasonal in nature. “Rise in prices in commodities are largely seasonal.

Government is very frequently looking at changes and taking conscious calls for imports, and sorting out logistical issues. The blip in inflation will ease out. I don’t see food item inflation continuing,” she added.

Asked whether the reluctance by RBI to further cut policy rates puts additional pressure on the government to take more fiscal measures to revive the economy, Sitharaman said it would need delicate, continuous real time balance by both the monetary and fiscal authorities to revive the economy. “Lot of calibration and coordination has to be worked out and we are continuing to do that,” she added.

The RBI on Friday projected the Indian economy to contract 7.5% in FY21, shallower than 9.5% contraction it projected just two months ago, on the back of a host of lead indicators suggesting sustained economic recovery. However, S&P Global Ratings on Monday stuck to its earlier projection of 9% dip in GDP in FY21 holding it awaits more proof of sustained recovery in economic activities.

On the coronavirus vaccination programme, Sitharaman said she needs to know cost per dose and cycle of the vaccine to decide on how much to allocate in the Budget for it. “As of today, we don’t know whether it is going to be one dose or two doses or whether recurrent doses need to be given after six months. Whichever vaccine gets cleared and once it is cleared, I need to know cost per dose and the cycle of the dose, only then can I think of a number,” she added.

On a RBI panel’s recommendation on giving banking licences to large corporate, Sitharaman said that such an issue has been discussed and implement in the past. “RBI itself has not taken a position. These are not new discussions or discussions happening only now and just under this governor. These discussions have happened under earlier governors. Decisions have been taken based on this earlier,” the minister said, adding that non-banking financial companies (NBFCs) have been given banking license in the past.

Source: livemint.com

***

[rainbow]Don’t miss the next GST Update / Article / Judicial pronouncement[/rainbow]

Subscribe to our newsletter for FREE to stay updated on GST Law

Resolve your GST queries from national level experts on GST free of cost.