The GST Council (Goods and Services Tax Council) has announced a cut in GST rates for 22 products on Saturday, out of which seven are in the highest tax rate bracket of 28%.
The GST Council meeting was chaired by Finance Minister Mr. Arun Jaitley, who stated that the tax cuts will have revenue implications of Rs 5,500 crore for the complete year.
Six of the items in the maximum tax bracket have been shifted to the 18% bracket. These include pulleys and transmission shafts for farming, monitors and TVs with a screen size up to 32 inches, power banks, re-treaded tires, digital cameras, and video camera recorders, and video game
consoles. One item – parts of carriages for disabled people – has been reduced from 28% to 5%.
A few days back, PM Mr. Narendra Modi had talked about ongoing deliberations to bring 99% of products under the 18% slab. He had also promised to keep only luxury or sin items in the 28% bracket. But product groups like cement and automobile components have been retained in the highest slab as bringing them down to 18% would mean a cut in revenues by Rs 33,000 crore.
Among other notable items getting the tax benefit, GST on movie tickets up to Rs 100 is now 12% as compared to 18% earlier, whereas for tickets above Rs 100, the tax rate will come down to 18% from 28%. Furthermore, bank services to basic savings accounts and the Pradhan Mantri Jan-Dhan Yojana (PMJDY) have been exempted from GST.
Third party insurance premium of goods-carrying vehicles has come down from 18% to 12% and frozen and provisionally preserved vehicles have been exempted from GST. Jaitley stated, “The 28% slab is moving towards sunset except luxury, sin, and items used by the economically stronger section.” The tax cuts will be effective from January 1, 2019.
The tax cuts are critical in terms of positioning for the Modi government that has been facing criticism on the multi-slab structure of GST, and more importantly the peak rate of 28%. On the other hand, the government also has the GST revenue shortfall to worry about.
The target was Rs 1 lakh crore per month, but the actual revenue collected has just crossed the target twice so far this year. While October saw the collection reach Rs 1 lakh crore, the figure dropped back to Rs 97,637 crore in November 2018. Analysts project that the GST shortfall by the end of the year could be anywhere between Rs 50,000 crore to Rs 1 lakh crore.
Jaitley has still expressed confidence that the government will meet the fiscal deficit target of 3.3% of GDP as he states, “At the stage, when we are looking at the (revenue) target, indirect tax is little behind the scheduled direct tax, the direct tax is ahead of schedule. Our non-tax revenue also seems to be moving ahead fairly well. At the moment, the government is quite optimistic that we will be able to meet the fiscal deficit target.”