GST hike on non-essential items unlikely despite falling revenues

Sources indicated that as of now there is no proposal to reduce GST rate on essential items, even as it is ultimately GST Council which will take any decision on changing the tax rates and not just the central government.

The Finance Ministry is not in favour of increasing goods and services tax (GST) rates on non-essential items in the meeting of the GST Council scheduled in June, despite sliding revenue collections, government sources said on Friday. Higher taxes on non-essential items will further bring down their demand and impede the overall economic recovery. Sources also indicated that as of now there is no proposal to reduce GST rate on essential items, even as it is ultimately GST Council which will take any decision on changing the tax rates and not just the central government.

“After the lockdown is lifted demand for everything has to revive and not just essential items. Demand from all sides, for all goods have to be induced. That is important as the government wants to revive the economy,” the sources said. Tax rates are likely to come up for discussion during the council meeting next month to be attended by state finance ministers, they added. The 39th meeting of GST Council was held in March, which proposed rationalisation of taxes on many items.

Explained

Need to induce demand

Even as any decision on changes in GST rates will be taken by the GST Council, the government is recognising demand needs to be induced across the sectors as the lockdown slowly lifts.

The nationwide lockdown that is in place since March 24 has severely affected demand production across all sectors.

Sources added the government has not taken any call on monetisation of deficit at this point of time to shore up its resources. “Nobody knows how this COVID-19 pandemic pans out, what shape it is going to take, what kind of impact it will have on the Indian economy, and globally also no country knows today what lies three months later. So the government is keeping all options open and will take decisions as we go forward,” sources said, indicating that the government may continue with cash transfers into bank accounts of poor and needy people.

The Centre has increased recently the borrowing limit from Rs 7.8 lakh crore to Rs 12 lakh crore, which is Rs 4.2 lakh crore higher than the Budget estimate. Sources, however, said there is a need to reduce cost of borrowing for the government in the given situation.