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The Goods and Services Tax (GST) Council is unlikely to approve the lowering of tax for the automobile and allied components sector this week, as a study has warned of major revenue losses, two government officials said.
A study has shown that the total annual revenue loss could be as much as Rs 50,000 crore, if the Council decided to lower tax rates for the auto sector to 18 per cent from 28 per cent.
Meanwhile, state officials in Kerala, Punjab and West Bengal said that they are also opposed to any cut in tax rates in the automobile sector or even consumer goods.
In the April-July period, total tax revenues of 20 Indian states fell 7 per cent to Rs 4,90,000 crore compared with the same period last year.
Some states were particularly hard hit, with data showing Andhra Pradesh, Rajasthan and Punjab tax collections plunged 59 per cent, 35.5 per cent and 12.5 per cent, respectively.
“I will oppose any reduction for the simple reason that it won't be revenue neutral,” said Thomas Isaac, Finance Minister of Kerala.
The auto sector, which has been reeling from the worst slump in nearly two decades, has pushed for a lowering of tax rates at the September 20 GST Council meeting, in a bid to revive vehicle demand.
“In my view, if the centre feels that it is good for the economy, and they will be able to compensate the states, then the states should support the proposal,” said Himanta Biswa Sarma, the Finance Minister of Assam.
Finance Minister Nirmala Sitharaman has in recent weeks outlined a slew of measures to revive investor sentiment and push growth up from a 25-quarter low of 5 per cent in April-June.
But measures such as creating a stressed fund for the hard-hit housing sector, a withdrawal of higher taxes on foreign portfolio investors and planned mergers among state-owned banks have not really helped revive investor sentiment.
Weak growth has also hit the Central Government's direct tax collections, which are showing a 6 per cent growth rate, considerably less than the budgeted 17 per cent growth rate for this fiscal year, while GST collections in August fell to a six-month low.
This, in turn, could make it challenging for the government to meet its fiscal deficit target of 3.3 per cent for 2019-20.
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