gst-rejig-may-not-pose-fiscal-burden-on-govt-says-report

A leading analytics company and credit ratings agency has deduced that the restructuring of the Goods and Services Tax (GST) system is unlikely to pose any major fiscal burden on the government.

On September 3, the GST Council had announced a complete overhaul of the indirect tax structure that was in place in India, cutting down two of the tax slabs of 12 per cent and 28 per cent to bring the total tax slabs to two – 5 per cent and 18 per cent, with a 40 per cent ‘luxury’ tax category for certain ‘sin’ goods. The new tax system, which will lead to reduced prices of at least 375 items, is to be implemented from September 22. 

Credit ratings agency Crisil, in its latest report, said the slashing of two tax slabs will bring in more goods and services under the formal net, leading to a gradual support tax buoyancy over the medium term.

The government has estimated a net loss of an annualised ₹48,000 crore in the short term on account of GST rationalization; while the total GST collections in the previous fiscal were ₹10.6 lakh crore. Hence, the loss does not seem significant, the report said.

 

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Further elucidating its report, Crisil said previously, a majority (70 per cent to 75 per cent) of the revenue came from the 18 per cent slab while only 5-6 per cent came from the 12 per cent tax slab and almost 13-15 per cent revenue came from the 28 per cent slab.

So, reducing tax rates on items from the 12 per cent bracket may not render significant revenue loss, it added.

Moreover, rates on several fast-growing services like mobile tariffs remain unchanged, while new services such as e-commerce delivery have been brought under the GST ambit and will be taxed at 18 per cent.

An increase in disposable incomes due to benefits on certain mass consumption items could further drive up their demand and tax collections, the report said, adding that producers passing tax changes onto the consumers is a key factor which would also determine the spending pattern of the latter.