Government unlikely to slash GST rates

The government is unlikely to reduce goods and services tax rates or give a waiver, as demanded by industry in the wake of coronavirus pandemic and the acute economic crisis in the country.

Sources said that the GST rates cannot be decided by the Finance Ministry. It is the GST Council that decides on the rates. The reduction in rates will impact revenues of both states and the Centre. The argument given by industry is that GST exemption would lead to a revival of demand due to reduction in prices and hence benefit in the fight against Covid-19.

As part of the Rs 20-lakh crore economic package, Finance Minister Nirmala Sitharaman announced a host of reform measures to boost investments.

The government has provided exemption and moratorium on payment of various taxes and debt as part of the package.

Contrary to what is being suggested, government sources said on the condition of anonymity that GST exemption would seriously jeopardize the industry's interests and not result in any significant gains to consumers. Therefore, there is no point to exempt businesses from this tax that would lead to blocked input tax credit (ITC), resulting in increase in manufacturing cost and a higher price for consumers.

“Hopefully, the Centre is not considering the demand. Exemption of GST on the final product is never a good idea. It distorts the value chain. It does not necessary lead to reduction in prices. In fact, it adversely impacts domestic industry,” Najib Shah, former chairman, Central Board of Indirect Taxes and Customs (CBIC), told IANS.

The issue for GST exemption has surfaced particularly with respect to items needed in the fight against the pandemic such as ventilators, personal protection equipment (PPE), Covid-19 test kits, sanitizers, etc.

At present, the liability of the inputs "be it 5 per cent or 12 per cent or 18 per cent" is more than offset when discharging the 5 per cent or 12 per cent GST liability on PPE or ventilator, the entire liability being 'paid' by the credit of taxes accumulated at the earlier stages of manufacture.

 

(With inputs from IANS).