FM hints at GST cut on two-wheelers : 26-08-2020

Even as the government is battling a much-reduced tax buoyancy and a yawning revenue deficit, finance minister Nirmala Sitharaman on Tuesday kept alive industry’s hopes for further tax cuts. Responding to an observation made by attendees at a CII event, on the need for lowering the rate on two-wheelers, the minister said it was “indeed a good suggestion, as this category is neither a luxury nor a sin good and hence merits a rate revision”.

The remark came ahead of the 41st session of the Goods and Service Tax (GST) Council, slated for Thursday. There has been a demand from the automobile industry, including largest two-wheeler maker Hero MotoCorp for reduction of the GST rate on bikes and scooters to 18% from the top slab of 28% meant for luxury goods, in order to spur demand.

Two-wheeler sales somewhat recovered in July following the easing of lockdown curbs, signalling improving rural demand on the back of a good rabi harvest. Sales stood at 12,94,49 units, up 32% from the June volumes but is still down by 12% from a year before.

However, the current juncture appears to be not conducive for further rate cuts, as GST revenues are way below the targets. As the finance ministry itself stated on Monday, as against the revenue neutral rate (RNR) computed by the RNR Committee of 15.3%, the weighted GST rate at present is just 11.6%.

In fact, Thursday’s Council meeting is meant to resolve the vexed issue of a yawning deficit in the GST compensation cess fund by resorting to market borrowings.

The idea is to use repay the debt using the proceeds of retaining the cess for a year or more beyond the current end date of FY22. The borrowing requirement could be around Rs 2 lakh crore, according to an FE estimate. If the state agrees to settle for a lesser compensation given the unforeseen circumstance created by Covid-19, then the borrowing size would reduce.

Sitharaman also stressed the government’s resolve to “move fast” on the disinvestment of state-run companies, including banks, that have been cleared by the Cabinet, after the Covid-19 outbreak dealt a deadly blow to its sell-off process.

“We have to move fast on cabinet-cleared disinvestment, including banks. Govt is working with RBI to ensure adequate support to Banks,” industry body CII tweeted, quoting the finance minister at its virtual event.

The government had budgeted an ambitious disinvestment target of Rs 2.1 lakh crore for FY21, hoping to garner a substantial chunk of non-tax revenue to partly make up for a lower-than-expected rise in tax collection, even before the pandemic spread its tentacles. Of the total target, Rs 1.2 lakh crore is to come from the divestment of public sector undertakings and another Rs 90,000 crore from a minor stake sale in LIC and the offloading of the government’s residual stake (47.11%) in IDBI Bank. But no disinvestment has taken place so far this fiscal due to the pandemic.

Late last month, Sitharaman said the Cabinet had cleared disinvestment of the government’s stake in 22-23 central public-sector enterprises. The leading corporations that have been on the block since last year include BPCL, Air India, Shipping Corporation and Container Corporation. While the government has extended, for a third time, the deadline to bid for BPCL, in which it holds 52.98%, by two months to September 30, the deadline for bidding for Air India has been extended twice, with the latest date being August 31.

Although Niti Aayog has reportedly suggested to the government to privatise four banks (Uco Bank, Punjab & Sind Bank and Bank of Maharashtra), the government hasn’t made any announcement of it yet.

Asserting that structural reforms have been accorded the highest priority, the minister said the government is reaching out to industry to address their concerns. The statement comes amid mounting expectations that the government would roll out the next round of fiscal stimulus soon to reverse a slide in growth, which, according to some analysts, could be as much as 25-40% in the June quarter.

To benefit a wider pool of businesses and individuals, Sitharaman said the government is open to more changes in the 3-lakh crore credit guarantee scheme, the CII tweeted. Earlier this month, the government had expanded the scope of the scheme, announced in May as part of the Rs 21 lakh crore relief package, to allow professionals and larger units with an annual turnover of up to Rs 250 crore, instead of the earlier cap of Rs 100 crore, to take advantage of it.

Every announcement that was made to soften the Covid blows is a testament to the government’s commitment to structural reforms. While the government’s plans to revive the private capex cycle through a sharp cut in the corporate tax rate last year were thwarted by the pandemic, Sitharaman expected fresh investments in sectors like fintech, now that post-Covid reset is taking place.

She, however, acknowledged that some sectors, such as tourism, real estate, hospitality and aviation, have been hit disproportionately by the pandemic and that domestic revenue generation remains a matter of concern.

The minister also asserted that there can’t be a better time than this for an exemplary cooperation between the government, regulators and industry. “Government is reaching out to industry, to understand their concerns,” she said.

The home secretary has already urged state governments not to impose curbs on the movement of goods as well as people, the minister said. This should help in a gradual pick-up in economic activities, as lockdown-related curbs have been substantially eased.

Source : Economic Times