GST panel unlikely to favour tax rate cut for auto, component sectors; revenue losses major concern for govt

New Delhi: The Goods and Services Tax (GST) panel is unlikely to approve lowering the tax for the auto and allied components sector this week, as a study has warned of major revenue losses, two government officials said.

A government study, attached to the agenda of a 20 September GST panel meeting, has said the total annual revenue loss could be as much as Rs 50,000 crore ($6.95 billion), if the panel decided to lower tax rates for the auto sector to 18 percent from 28 percent.

Meanwhile, state officials in Kerala, Punjab and West Bengal say they are also opposed to any cut in tax rates in the autos sector, or even consumer goods, because of lacklustre tax collections this fiscal year.

Representational image. Reuters

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In the April-July period, total tax revenues of 20 states fell 7 percent to Rs 4.9 lakh crore compared with the same period last year.

Some states were particularly hard hit, with data showing Andhra Pradesh, Rajasthan and Punjab tax collections plunged 59 percent, 35.5 percent and 12.5 percent, respectively.

“I will oppose any reduction for the simple reason that it won’t be revenue-neutral,” said Thomas Isaac, finance minister of the southern state of Kerala.

The auto sector, which has been reeling from the worst slump in nearly two decades, has pushed for a lowering of tax rates at the 20 September GST panel meeting, in a bid to revive vehicle demand.

The GST panel is chaired by the federal finance minister and all state finance ministers are members. The panel makes decisions by vote.

Still, those states ruled by Prime Minister Narendra Modi’s Bharatiya Janata Party may be willing to support a GST cut if the federal government pushes such a proposal.

“In my view, if the centre feels that it is good for the economy, and they will be able to compensate the states, then the states should support the proposal,” said Himanta Biswa Sarma, the finance minister of the northeastern state of Assam.

The GST meeting will be closely watched as it could help investors gauge the government’s seriousness in reviving growth in Asia’s third-largest economy.

Finance Minister Nirmala Sitharaman has in recent weeks outlined a slew of measures to revive investor sentiment and push growth up from a 25-quarter low of 5 percent in April-June.

But measures such as creating a stressed fund for the hard-hit housing sector, withdrawal of higher taxes on foreign portfolio investors and planned mergers among state-owned banks have not really helped revive investor sentiment.

Weak growth has also hit the federal government’s direct tax collections, which are showing a 6 percent growth rate, considerably less than the budgeted 17 percent growth rate for this fiscal year, while GST collections in August fell to a six-month low.

This, in turn, could make it challenging for the government to meet its fiscal deficit target of 3.3 percent for 2019/20.