States divided on raising rates: GST Council may discuss plugging revenue leakage

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Several measures aimed at plugging revenue leakages under the goods and services tax (GST) regime are expected to figure at the upcoming GST Council meeting on Wednesday as the Centre and the states look to perk up collections. A concept paper based on the report of the committee of officials on revenue mobilisation is likely to be presented to the council, said a government official. A row has also been brewing between states and the Centre about releasing compensation payments. The states remain divided on the issue of raising rates or carrying out a significant revamp of the structure at this time. Punjab and Kerala have backed raising rates or tweaking them to make up for the revenue shortfall while others do not see this as an opportune time due to the economic slowdown. A final call on this will be taken by the GST Council. The concept paper will highlight key reasons for the shortfall in revenue. They include lowering of tax incidence following the GST rollout, a large number of exemptions and administrative loopholes. Goods and services such as hospitalisation in deluxe rooms, mobile phones and fabrics such as linen could be in focus with some states keen to shrink the list of exempted items or raise rates on some.

Tweak in GST Slabs

There are suggestions that the slab of 5% be raised to 8% or 10%, and the 12% and 18% slabs be bumped up into one of 20%. The GST Council secretariat had, at the end of last month, sought the views of states to address the issue of revenue shortfall, including rate rationalisation. The Centre is expected to ask the states to share the burden of revenue loss on the count of cuts in tax rates as also exemptions. Some of these changes had been made at the behest of state governments themselves. GST collections crossed the Rs 1 lakh crore mark in November after three consecutive months in which there were below this mark. The panel of officials has also suggested administrative tightening measures, including the extensive use of data to plug evasion, which could be taken up by the council, the official said.

Compensation delay

The upcoming meeting could be a stormy one with states, especially the Opposition-ruled ones, expected to try and pin the Centre down over the delay in the release of compensation in lieu of revenue loss on account of the shift to GST. “I would request Union finance minister Nirmala Sitharaman to expeditiously release the August-September compensation instalment,” Bihar deputy chief minister Sushil Modi said. Seven states including Kerala have threatened to approach the Supreme Court against the Centre over the delay. A senior official from another state said the delay in compensation will need to be addressed urgently if the Centre wants harmony to prevail on the council. “Delays in release of funds have hurt state finances,” the official said. Another state government official pointed out that the opening balance for the current financial year was over Rs 47,000 crore. A payout of Rs 65,151 crore was made to states and cess collections stood at Rs 41,574 crore, leaving a fund balance of Rs 23,695 crore with the Centre. “Payment to states can well be made on ad hoc basis… Actual shortfall, if any, would reflect only in the last quarter.”

Read More at: https://economictimes.indiatimes.com/news/economy/policy/states-divided-on-raising-rates-gst-council-may-discuss-plugging-revenue-leakage/articleshow/72724627.cms

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