Rumors Govt Will Not Reduce GST Rates After Lockdown

There were rumours that the Government will reduce the GST rates Grab the information of revised GST slab rates on consumer products in India, Although GST council finalized the slab rates like 5%, 12%, 18% and 28% for six months to boost demand after the lockdown, but if we take some time and think about the situation and impact of it, we will find -out that The Central Government may not accept this request or demand. There can be various valid reasons for this decision, two finance ministry officials on 19 May clarifies that “The exemption would block input-tax credit that would have an adverse impact on businesses and may not result in any significant gain to consumers”.

One source said that “Input tax credit reduces the tax paid on inputs from taxes to be paid on the output of finished goods. The proposed GST exemption will make output tax zero, blocking the input-tax credit, which will add to the cost of the finished goods, the officials with direct knowledge of the matter said, requesting anonymity”. One of the officials in this matter said that “This will not only be injurious to the industry but also to the consumer at large and this is certainly not going to revive demand,”.

The GST system View the full comparison report between old and new GST return filing system in a systematic manner. The new system will be applicable from October 2020. Read more is an integrated system of indirect taxes and the GST is the main source of the income for the state and central government with one-third of total tax received. From the total, almost 70% are provided to the states as their shares and fund by the government. Some industry experts argued that the deduction will increase the demand in the market.

In the favor of this argument president of the Associated Chambers of Commerce and Industry of India (Assocham) Niranjan Hiranandani, responded that “a cut in GST rates on almost all products by 50% for six months to boost demand”. In the response of clarification of officials, he said that “In theory, yes – lost input tax credit (ITC) on the exemption from GST is an issue of concern… It has to be viewed from the perspective of incentivizing consumers by inducing them to make a purchase, leading to the consumption which is the need of an hour. The argument is that a cut in GST for a short term, say the next six months, will reduce the amount paid for the good or service, so the consumer will buy more and thereby, revitalize the economy. It is a simple issue of reducing (not exempting) GST so that consumers go ahead and buy – in the present, during the period of reduced GST rather than keep waiting for some other day to do so.”

He said that the demand generating need some sort of boost and Cut in GST rates will be beneficial for it, he added.”The aspect of ITC can be dealt with so long as the suggestion is taken in the proper perspective.”. Meanwhile, experts suggested Government to opt-in for a cautious approach, MS Mani, partner at Deloitte India said that “There does not appear to be any empirical evidence that any country has exempted GST and VAT [value-added tax] across the board in order to drive up the pandemic-impacted economies. There could be specific sectors/areas where there may be a need to rationalise the GST rates for a temporary period to assist the sector. These needs are done very cautiously ensuring that revenue losses are minimised, leakages are avoided and the reductions do not lead to the emergence of inverted duty structure situations,”. Here Inverted duty structure situation stands for a situation where the inputs are taxed at a higher rate compared to the finished goods.

Tax partner at consulting firm EY, Abhishek Jain, responded that “a GST exemption would entail breaking of the credit chain, higher input tax costs for businesses and complexities in compliances with credit transitions during taxable and exempt-tax periods”. He added in his statement that “A specified percentage GST rate reduction could be explored vis-à-vis a NIL rate/exemption by the government specifically for the severely impacted sectors. In a scenario, where the said rate reduction entails the accumulation of credits, the government should ensure a full refund of the credits so accumulated with faster processing of such refunds,”.

Pratik Jain, who is partner and leader of the indirect tax practise at PwC India, presented a suggestion providing GST concessions only for industries which are going through a very tough time such as Airlines, and hospitality due to the Covid-19 pandemic. Pratik Jain Said that “In addition, the government should consider providing working capital cushion to the industry by deferring the payment of GST Check out due dates of payment under GST for general and composition taxpayers in India. We have included penalty charges on late payment with interest. collected by few months to the industry at large, without payment of any interest,”.