- Date : 12/12/2019
- Read: 3 mins
The GST rate hikes may affect revenue collections and statutory compensations. Its impact on inflation remains to be seen.
The GST tax rate in India is all set for a hike. Post the GST council meeting, the decision to increase the tax rate was announced. This will increase the indirect tax burden of the end-user and the tax revenue by an estimated Rs 1 lakh crore. The 5% base slab will make way for a 4-5% increase while 12% slab will be laid to rest altogether. 243 items from this category will be stacked in the 18% category. As a part of these changes, several exempted items will also be brought under the GST ambit, notably, treatment in premium private hospitals, hotel accommodation below Rs. 1,000, unbranded paneer, raw silk, high-value company lease etc.
Earlier reductions in the GST rates had led to Rs 2 lakh crore fall in annual revenue, apart from reducing the effective rate of tax from 14.4% to 11.6%. The economic slump has also contributed to a fall in revenue from GST. The monthly compensation burden on the centre has risen to Rs 13,750 crore, increasing three folds compared to the July 2017 – March 2018 period.
Related: GST rate cut on 20 to 25 products as government looks to revive ailing economy
It is a tough decision that the government believes is inevitable. While it will affect inflation, the government expects that most of the revenue will come from the changes in the lowest slab. Experts have warned of an inflationary effect, but the government argues that food prices already drive inflation, and this rise is not likely to impact it further. These proposed changes will serve two primary aims of the government. Firstly, an increase in revenue and secondly, a move to a three rate structure. The proposal will be discussed with the Centre in the coming week.
Related: How does GST impact your wallet?
How has the GST revenue collections been in recent months?
In recent months the GST revenue collections have seen a downward slip. During the current financial year, the year on year collections during April to August saw improvement, but September and October saw a decline. September saw 91,916 crores compared to 94,442 crores a year ago. In October, the fall was from 1 lakh crore to around 0.95 lakh crore. November has seen a 1 lakh crore collection, but it could be because of the festive season.
How long will states continue to receive statutory compensations?
Statutory compensation on GST collection is given to states if and when they fail to achieve a 14% growth in collections every year. This is applicable as per the provisions of Section 7 of the GST (Compensation to States) Act, 2017. The period starting with the implementation of GST up to 2022 has been recognised as the transition period for GST. Accordingly, statutory compensation is made applicable for a five year period, and it will be calculated and released at the end of every two months.
Related: How well do you understand GST
Why has the GST collection been below expectations?
The reductions in GST rates has been attributed as one of the causes for fall in GST collections. The weakening consumer demand and an overall economic slowdown have invariably contributed to the stagnating collections. Besides, there is ample scope for further improvement in compliance and the widening of the tax base. The 15th Finance Commission, in fact, noted that the slow growth is unlikely to improve completely. It sees the need for continuation of state compensations even beyond the sunset year of 2022. Take a look at how the government is leveraging data analytics to catch tax evader.
The GST tax rate in India is all set for a hike. Post the GST council meeting, the decision to increase the tax rate was announced. This will increase the indirect tax burden of the end-user and the tax revenue by an estimated Rs 1 lakh crore. The 5% base slab will make way for a 4-5% increase while 12% slab will be laid to rest altogether. 243 items from this category will be stacked in the 18% category. As a part of these changes, several exempted items will also be brought under the GST ambit, notably, treatment in premium private hospitals, hotel accommodation below Rs. 1,000, unbranded paneer, raw silk, high-value company lease etc.
Earlier reductions in the GST rates had led to Rs 2 lakh crore fall in annual revenue, apart from reducing the effective rate of tax from 14.4% to 11.6%. The economic slump has also contributed to a fall in revenue from GST. The monthly compensation burden on the centre has risen to Rs 13,750 crore, increasing three folds compared to the July 2017 – March 2018 period.
Related: GST rate cut on 20 to 25 products as government looks to revive ailing economy
It is a tough decision that the government believes is inevitable. While it will affect inflation, the government expects that most of the revenue will come from the changes in the lowest slab. Experts have warned of an inflationary effect, but the government argues that food prices already drive inflation, and this rise is not likely to impact it further. These proposed changes will serve two primary aims of the government. Firstly, an increase in revenue and secondly, a move to a three rate structure. The proposal will be discussed with the Centre in the coming week.
Related: How does GST impact your wallet?
How has the GST revenue collections been in recent months?
In recent months the GST revenue collections have seen a downward slip. During the current financial year, the year on year collections during April to August saw improvement, but September and October saw a decline. September saw 91,916 crores compared to 94,442 crores a year ago. In October, the fall was from 1 lakh crore to around 0.95 lakh crore. November has seen a 1 lakh crore collection, but it could be because of the festive season.
How long will states continue to receive statutory compensations?
Statutory compensation on GST collection is given to states if and when they fail to achieve a 14% growth in collections every year. This is applicable as per the provisions of Section 7 of the GST (Compensation to States) Act, 2017. The period starting with the implementation of GST up to 2022 has been recognised as the transition period for GST. Accordingly, statutory compensation is made applicable for a five year period, and it will be calculated and released at the end of every two months.
Related: How well do you understand GST
Why has the GST collection been below expectations?
The reductions in GST rates has been attributed as one of the causes for fall in GST collections. The weakening consumer demand and an overall economic slowdown have invariably contributed to the stagnating collections. Besides, there is ample scope for further improvement in compliance and the widening of the tax base. The 15th Finance Commission, in fact, noted that the slow growth is unlikely to improve completely. It sees the need for continuation of state compensations even beyond the sunset year of 2022. Take a look at how the government is leveraging data analytics to catch tax evader.
