Finance minister Nirmala Sitharaman will have to do a tough balancing act in the GST council meeting to be held in Goa this Friday. She and her state counterparts have received several demands for the rate rationalisation across different sectors. These demands have come at a time when the GST revenues are dwindling on account of rate cuts implemented by the council over the last two years. It has become even more daunting for Nirmala Sitharaman to heed to these demands as the Union government’s Cess collection, to compensate states in case of a shortfall in their projected revenue collection, is below the required level. The combined GST collections of both the Centre and states have been below Rs 1 lakh crore in two of the first five months of this fiscal. Moreover, the Union government’s Cess collection to compensate the states may fall short by Rs 40,000 this year, according a report by Credit Suisse. It would have been easier for the all-powerful GST council to ignore these demands to maintain the overall revenue collection under the nationwide common goods and services tax. However, a slowing economy makes it difficult for the council to delay the relief. It will not only aggravate the slowdown but any further delay in the relief will ultimately hit the revenue collections.
Finance Minister Nirmala Sitharaman has already announced relief for NBFCs, Housing Finance Companies and Real Estate sector in recent weeks. Relief for more sectors like automobile, cement, FMCG can be announced in the GST council’s meeting scheduled this week. The automobile sector is one of the worst-hit sectors by a slowing GDP growth that has declined to 5% in the April-July period this year. The advent of cab aggregators like Ola, Uber, shrinking parking space and crowded roads in urban areas, and high GST rates on auto components and finished products has led to a steep fall in the automobile sale in recent months. It has led to the closure of auto dealerships, job cuts in the auto industry and suspension of production at some automakers plants. Auto industry is demanding a sharp cut in GST rate to tide over this difficult phase. Cement manufacturers and real estate developers have been demanding for a rate cut on Cement for quite some time. Cement is one of the three most important raw material items, including steel-iron bars, tiles, and sanitary-ware, used in the construction industry.
Real estate developers complain that GST on all these products is on the higher side, for example, cement attracts GST at a rate of 28, and there is a persistent demand from the industry to reduce the GST on cement. “GST rate on three-four most important items like cement, steel, tiles, and sanitary-ware is on higher side. These are costly items. There is a need to rationalize GST on these items if the government wants to promote affordable housing,” Anuj Chaudhary, Director of Delhi-NCR based Panchsheel group told Financial Express Online. The threat of a large scale job cuts in one of India’s most well-known biscuit manufacturer – Parle Group – made headlines in the recent weeks. Biscuit manufacturers complain of dwindling sales due to high rate of GST and a slowing economy. Earlier sub-Rs-100 per kilogram biscuits attracted tax at 12%, however, after the implementation of GST in July 2017, both premium and mass consumption biscuits have been taxed at the same rate of 18%. The industry has been demanding to take corrective measures for the last two years. However, the recent slowdown has aggravated their problem. Biscuit manufacturers are hopeful that the GST council may announce some relief for them in the council’s Goa meeting.