Frequent changes to GST rates upset calculations, revenue collection, says FM Sitharaman

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Finance minister Nirmala Sitharaman on Friday signalled that the government may limit changes in goods and services tax rates by the GST Council to only once a year instead of frequent tweaks. As per Sitharaman, frequent tweaks in rates upset calculations and revenue collection.

Speaking at the Hindustan Times Leadership Summit, FM suggested that apart from the economic downturn prior to and post the pandemic, frequent tweaking in the GST rates adversely impacted revenue collections. However, experts believe that frequent tax rate cuts in the initial years of the GST rollout helped in fine-tuning the new indirect tax system and in keeping it flexible, though it came at a cost to the exchequer.

“Ideally, I have been requesting that the council doesn’t in every one of its sittings, decide to change rates upwards or downwards. It actually upsets the calculation of your revenue generation. As a result, states or the Centre’s planning that this year they expect so much to come from GST need to be recalculated every three months after a council meeting,”  said Sitharaman at the Summit.

“Like in the Budget, taxation-related issues, particularly (GST) rates, can be dealt with once, so that at least for the next 12 months, there is a predictable course. I am sure the GST Council will not hesitate to discuss and take a call on this,” she added.

Meanwhile, the government of Chhattisgarh on Thursday communicated its acceptance of Option-1 to meet the revenue shortfall arising out of GST implementation. The number of States who have favoured Option-1 has gone up to 27. All States except Jharkhand and all the three Union Territories with Legislative Assembly have decided in favour of Option-1.

The States & Union Territories who choose Option-1 are getting the amount of shortfall arising out of GST implementation through a special borrowing window put in place by the Government of India. The window has been operationalised since 23rd October 2020 and the Government of India has already borrowed an amount of Rs 30,000 crore on behalf of the States in five instalments and passed it on to the States and Union Territories, who chose Option-1.

The funds borrowed through the special window were released to the States and UTs on 23rd October 2020, 2nd November 2020, 9th November 2020, 23rd November 2020 and 1st December 2020. Now, Chhattisgarh will also receive funds raised through this window starting from the next round of borrowing.

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