Auto, realty companies may not get relief at GST Council meet today

The Goods and Services Tax (GST) Council is unlikely to reduce tax on cement and automobile parts from the peak  rate of 28 per cent in its meeting on Friday despite intense lobbying by the industry.

Facing a severe slowdown, the two sectors — construction and automobile — have been seeking a demand boost from the government. But a tax reduction on cement and auto parts would have meant a revenue hit of Rs 35,000 crore to the government, suggest estimates.

Issues related to the tax structure for solar projects, reduction in tax rate on electric vehicles, e-ticketing for movie theatres, and a unified rate on lottery are expected to be discussed during Union Finance Minister Nirmala Sitharaman’s first Council meeting.

“There is no scope for reduction in the GST rate on auto components and cement at this stage as they are big revenue contributors. Reduction in rates on items in the peak tax rate is not on the agenda,” said a government official. He added with EVs yet to take off, there was no significant revenue impact per se. The Council will take up rate cut for EVs from 12 to 5 per cent.

About 34 items falling in the sin and luxury goods are taxed at 28 per cent. With a grim revenue position, the government is unlikely to shrink the peak tax slab. Shortfall in the central GST (CGST) for 2018-19 stood at Rs 50,000 crore, and the government will need growth of 33 per cent to meet the steep target of Rs 6.1 trillion for FY19.

About 60 per cent of the revenue comes from items in the 18 per cent rate slab, 13 per cent from items in the 12 per cent slab, 22 per cent from items under 28 per cent, and the rest of the revenue from 5, 3 and 1 per cent slabs.

“This is going to be an important GST council meeting and with the new Chairperson, one would expect that decision making will continue to take place with consensus as earlier. Given the GST revenue target for the current year, there may not be room for major rate changes,” said Pratik Jain, partner, PwC India.

“Given the government’s objective currently on stabilising revenue collections from GST, considering a tax reduction on cement and auto may be difficult,” said Abhishek Jain, Tax Partner, EY.

“The Council meeting should discuss measures to expand the tax base and improve compliance. There may not be much headroom to reduce rates given that the collections have started stabilising only recently,” M S Mani, partner, Deloitte India, said.

Other issues to be taken up by the Council in the half-day meeting include one-year extension for the GST anti-profiteering body, lowering GST rate on electric vehicles to 5 per cent, introduction of electronic invoicing facility for large firms and RFID tagging of E-way bills.

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