The Centre is not inclined to accede to the industry demand for GST waiver at this juncture. Even though a final call on rate reductions will have to be taken at the GST Council, where the Centre and the states follow a democratic voting system, officials are of the view that the industry’s call for a GST waiver for six months to spur demand is misplaced, as it doesn’t factor in the adverse impact of such a move.

The consequences would be felt not only by the industry itself but also by consumers and states, these sources said. Furthermore, keeping the GST in abeyance would allow imports to gain an unfair advantage over domestically manufactured goods, they felt.

Officials were responding to the demand mooted by some that the GST regime be suspended for a certain period in the wake of the economic slump caused by Covid-19 pandemic. The proponents of the idea think the waiver could help as a stimulus measure on the demand side of the economy.

An official said if GST is waived on final products, it would also block the input tax credit (ITC) which the seller adjusts against the eventual tax liability in normal course. The seller then would have no recourse but to raise the price of the commodity, thus defeating the purpose of creating more demand.

Further, a GST waiver would lead to a demand of refund of ITC lying in balance with manufacturers, traders and service providers, who are already suffering from acute liquidity problems. “However, refund of several lakh crore in the form ITC, lying utilised with taxpayers, is near impossible,” an official said.

Additionally, the states’ finances would suffer from nil GST collection as nearly 70% of this indirect tax revenue goes to the states’ coffers as a combination of their own share (state GST) and devolution from the Center’s share.

“In addition to the collection targets coming under pressure, GST waivers would be difficult to administer as they could lead to divergence of pricing mechanism across sectors and inverted duty structure situations,” MS Mani, partner at Deloitte India, said.

A GST waiver would also unwittingly promote imported goods that have not suffered any tax in their domestic jurisdiction, another official said. He added that GST exemption on sanitary napkins in the past and PPE kits more recently showed the adverse impact on prices and domestic manufacturers.

However, some experts said instead of GST waiver across the board, an exemption on certain essential items could be implemented.
Government can make essential commodities zero-rated including food, housing, public transport, and pharmaceutical products, so that the consumer are freed from the burden of taxes, and businesses have easier compliance,” Rajat Mohan, senior partner at AMRG & Associates, said.

Another official said while a final decision is in the GST Council’s domain, the body may find that the option only brings hardship to the businesses and state finances, while providing virtually no relief to customers.

“The government should look at rationalising the tax rates in general which can help bring down the cost of these mass-market goods. Such concession will not only have a positive impact on public sentiment but will also improve the revenue for exchequer on account of enhanced demand,” Ayush A Mehrotra, partner at Khaitan & Co, said.

Source : Times of India