GST Council Meeting Today, Amid Talk Of Rate Hike To Bridge Revenue Shortfall
Finance Minister Nirmala Sitharaman at the press conference ahead of the 37th GST Council meeting, in Panaji, Goa, on Friday. (Photo: PTI)

GST Council Meeting Today, Amid Talk Of Rate Hike To Bridge Revenue Shortfall

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The 38th GST Council meeting will start at 2:00 pm today to review the indirect taxation structure for shoring up government, revenue as lower-than-expected collections have led to a delay in compensation paid to states.

Some of the states, such as West Bengal, have opposed any hike in cess rates or rate calibration amid a slowdown in the economy, stating that consumers, as well as the industry, are passing through a distressing time.

With the revenue shortfall looming large, there have been suggestions for raising GST rates and cess to meet the gap.

GST Council, headed by Finance Minister Nirmala Sitharaman, had sought suggestions from states on review of the indirect tax and compensation cess on various items, rate calibrations for addressing the inverted duty structure, compliance measures other than those currently under implementation to augment revenue.

Also read: GST: Time For The Giant Leap Forward

In a letter to Sitharaman, West Bengal Finance Minister Amit Mitra said that states have received letter from the GST Council wherein suggestions have been sought on review of items currently under exemption for shoring up GST revenue.

"This is indeed alarming. We should not in any way tinker with the rate structure or impose any new cess at a time when the industry and consumers are going through the most distressing times with 'stagflation' knocking at our door (stagnation accompanied by growing inflation)," Mitra said.

Many economists, including former RBI Governor Raghuram Rajan, have expressed fear of India getting into a slow growth high inflation, or stagflation mode.

Rising food prices pushed India’s retail inflation to an over three-year high of 5.54 percent in November, while industrial sector output shrank for the third month in a row by 3.8 percent in October, indicating deepening slowdown in the economy.

India's economic growth slowed to a six-year low of 4.5 percent in the July-September quarter. With inflation rising, fears of stagflation—a fall in aggregate demand accompanied by rising inflation—have resurfaced.

Also read: States Suggest Three GST Rates, Law Tweaks To Shore Up Revenue

Facing heat over delay in payment of GST compensation, the central government on Monday released Rs 35,298 crore to states to make up for revenue shortfall since the rollout of the indirect tax on July 1, 2017.

When GST was implemented, states were—through legislation—promised to be compensated for the loss of revenue as not just their taxes were being subsumed in the new levy but also their right to levy taxes was being snatched.

The compensation amount was fixed at 14 percent on top of revenue in the base year of 2016-17. The corpus for paying compensation was collected by levying a cess on top of GST rates on tobacco products, cigarettes, aerated water, automobiles, and coal.

The Central GST collection fell short of the budgeted estimate by nearly 40 percent during the April-November period of 2019-20, according to government data.

The actual CGST collection during April-November stood at Rs 3,28,365 crore, while the budget estimate was Rs 5,26,000 crore for these months.

According to sources, the finance ministry has set a Rs 1.1 lakh crore monthly GST collection target for the remainining four months of 2019-20.

Also read: Government Plans To Review Compensation Cess, GST Rates

Revenue Secretary Ajay Bhushan Pandey had a video conference meeting with top tax officials and impressed upon them to step up measures to achieve direct and indirect tax collection targets.

Officers have been particularly urged to ensure that during field enforcement drive and visits, no taxpayer is overreached or troubled, the source said.

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