‘GST rate-cuts may lead to revenue shortfall in near-term’

Bihar Deputy Chief Minister and GST Council member, Sushil Modi, on Thursday said the reduction in GST tax rates might lead to revenue shortfall in the next three-four months, but will result in ‘better revenues’ in the long term.

The GST Council had recently lowered rates on over 80-odd items, including footwear, refrigerator, washing machine and small screen TV; and had also rationalised rates on some services. In all, the rates on close to 450-odd items have been brought down in the last few months. “When you reduce tax rates there will be some shortfall in revenue; moreover, the monsoon season is not very good for business growth. So there could be a shortfall in the next three-four months. But lower the tax rate, more the compliance. So moving forward we expect the reduced tax rates to bring in better revenues,” Modi said.

He was speaking to newspersons after a seminar on ‘One year of GST’ organised by the Eastern India Regional Council of ICAI here.

According to him, the way the GST is being implemented successfully, no States would require to be paid any compensation after three years. It is to be noted that States have been promised to be compensated for the first five years under GST for any loss of revenue.

Infact, the revenue shortfall of manufacturing States was lower than the consuming ones despite GST being a destination-based tax.

“It is surprising to see the manufacturing States like Maharashtra, Tamil Nadu, Gujarat and few others were experiencing a lesser shortfall in GST revenue collection despite being manufacturing States,” he said.

The upcoming GST Council meeting on August 4, will focus on the problems faced by the MSME sector. According to him, small manufacturers, traders and service providers have been facing difficulty due to the new system.

“We will discuss and try to sort out those issues. After this meeting we expect life of MSMEs to become much simpler,” he said. Expressing hope of being able to achieve the monthly revenue target of ₹1 lakh crore in the ‘not so distant future’, Modi said the GST Council could think of bringing the petroleum products under GST once the target is achieved.

“GST cannot be complete unless petroleum products, stamp and electricity duty are included in it,” he said.

However, there was “no guarantee” that the prices of petroleum products would come down once it is brought under GST. “Even if these products are brought under GST, the States will also be allowed to levy taxes over and above the GST rate as these are considered as sin goods,” he said.

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