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Modi government’s GST sop for traders may take longer as August revenues drop 2.6%

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Government wants to rationalise tax slabs to placate its core vote bank of traders but hits a revenue roadblock.

New Delhi: The Modi government’s desire to cut taxes on more goods under the goods and services tax (GST) to please its traditional vote bank of traders ahead of the 2019 elections may take longer than expected.

There is a rethink in the government on the move after GST revenues dropped by 2.6 per cent in August over the previous month.

GST revenue for August stood at Rs 93,960 crore, down from Rs 96,483 crore in July. In June, revenue collection was ₹95,610 crore.

A senior government official said that the drop in GST collection in August was due to a reduction in tax rates for many items such as washing machines, televisions sets, grinders, shavers, hair dryers and refrigerators among others while sanitary napkin was brought under the exempt category.

Members of the GST council, however, have been indicating that they are still looking at further rationalisation of the tax slabs.

Also read: Price of sanitary pads won’t change much despite zero GST. Here’s why

A GST candy

Sources in the ruling BJP and the government said the Modi government is considering rejigging GST tax slabs to placate traders, its core vote-bank, ahead of Lok Sabha elections due early next year.

While the government is already looking to merge the 12 and 18 per cent tax rates under one slab of 15 per cent, it is also considering increasing the highest bracket of 28 per cent to 30 per cent to ensure that revenue flow is not significantly impacted.

This would bring down the tax slabs from the current four to three. This, however, would also mean that tax rates for certain items could go up.

Sources said that tax rates of goods under the 28 per cent bracket may not drop further. At present, only 35 items that include air conditioners, automobiles, digital cameras and video recorders, among others, attract the 28 per cent tax.

“There is a plan B to have three GST slabs of 5 per cent, 15 per cent and 30 per cent. As states may object to the tax slab merger, some believe that merging of the 12 per cent and 18 per cent slabs to make it 15 per cent and increasing the tax slab to 30 per cent would average out the revenue that states get out of the GST. And thus, the Centre would see little objection from the states,” another source said.

The source added that the BJP’s central leadership had been apprised by senior leaders of state units about the trading community’s sentiments.

Also read: One year since it rolled out, GST remains a potent political tool to beat Modi govt with

The July sop

The proposal also comes in the wake of the GST council’s July decision, approving the quarterly filing of returns for small taxpayers, from the then existing monthly system. The small taxpayers have been categorised as those with turnover of below Rs 5 crore.

Sources said the idea of quarterly returns was to simplify the process for the small trader who had to employ a person to file the GST returns every month. “Many felt that filing returns every month was a cumbersome process and that the small trader does not have the resources and the time to file returns so frequently. In the quarterly filing, the process has become easier,” said the source.

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