The Goods and Services Tax (GST) Council could lower levies for sectors such as automobiles, biscuits and other fast-moving consumer goods (FMCG) at its September 20 meeting, said people with knowledge of the matter. It could also discuss raising the lowest slab of 5% to as much as 8%. That could set the ball rolling for a major revamp of GST structure as part of efforts to revive growth, they said. “These proposals will be placed before the council,” said a senior government official aware of the matter. The fitment committee, comprising state and central government officials, which met last week only discussed the possible revenue impact of a rate cut on automobiles. The GST Council, which meets in Goa next week, will take a final call on the matter. The automobile sector wants GST rates on passenger vehicles to be cut to 18% from 28% now. The auto sector, in addition to GST, also faces a compensation cess that ranges from 1% to 22%. Road transport and highways minister Nitin Gadkari has backed calls for lower GST on hybrid and other vehicles. Parle, Britannia and other biscuit makers have pitched for a reduction in GST from 18% to 12% to bring them on par with unbranded varieties. Auto sales fell 23.55% in August with dispatches in all segments, including passenger vehicles and two-wheelers, continuing to plummet. The government has been called upon to provide some stimulus in the form of tax cuts to boost consumption and prevent any further deepening of the slowdown.
States may have to share some of the revenue loss that would accrue due to any cut in GST on automobiles. Alternatively, other avenues of generating revenue such as restructuring of the 5% slab or raising the slab rate may have to be examined. Some state governments have backed merging the 12% and 18% brackets as part of broader reform. The revenue position could prompt an early call on the matter. The Centre is facing pressure as GST collections remain subdued and states have to be compensated in full for any revenue loss, calculated at 14% growth, for five years. GST collections rose 4.51% in August to Rs 98,202 crore, staying below the Rs 1lakh crore target. Sources said the compensation cess for June and July was about Rs 28,000 crore and if the remaining three installments are of the same order, it will add up to an additional Rs 84,000 crore for the year. However, the amount expected to be collected in the remaining period based on revenue in the past five months is Rs 58,200 crore. Taking into account the unutilised cess amount of Rs 23,400 crore, the amount available would be Rs 81,600 crore. “Any further shortfall in the revenue will further increase the gap between the amount available for release of compensation and amount of compensation required to be released,” said the person cited above. The cess is aimed at compensating states with a large manufacturing presence that lost out when GST was introduced as the latter is a consumption levy. The cess so collected is distributed among such states.