Frequent Changes of GST Destabilizes Revenue Collection: FM

Finance minister Nirmala Sitharaman has hinted that the Centre may limit changes in goods and services tax rates by the GST Council to be done only once a year rather than continuing to allow frequent tweaks.

Addressing the 18th edition of the Hindustan Times Leadership Summit, Nirmala Sitharaman recommends that apart from the economic slowdown before and post the pandemic, the frequent alterations in the GST rates adversely affected the revenue collections.

Nirmala Sitharaman says, “Ideally, I have been requesting that the council doesn’t in every one of its sittings, decide to change rates upwards or downwards. It upsets the calculation of your revenue generation. As a result, states or the Centre’s planning that this year they expect so much to come from GST need to be recalculated every three months after a council meeting." She continues, “Like in the Budget, taxation-related issues, particularly (GST) rates, can be dealt with once, so that at least for the next 12 months, there is a predictable course. I am sure the GST Council will not hesitate to discuss and take a call on this."

The minister’s advice at a time when the central and state governments are suffering an acute revenue crunch arising due to the economic recession along with frequent tax rate cuts.

However, the experts say that the frequent tax rate cuts in the initial years of the GST rollout have aided in helping in fine-tuning the new tax system and in stabilizing it overall.

M.S. Mani, partner, Deloitte India says, “While GST rate changes in the past signified the flexible approach adopted for taking care of the issues faced by businesses, there is a need to have a defined process and periodicity for future rate changes."

Considering economic revival, Sitharaman states that the current upsurge in GST collection in the past two months is not just the outcome of pent-up demand and that the recovery is likely to sustain in the coming months.

She further adds, “I am not just sure if just the pent-up demand or festival demand will explain consistent, more than ₹1 trillion monthly collection in GST for two months. Yes, this is the season when festive demand adds a bit more fervour to demand, which prevails through in a year, but I also talk to industry leaders—like core sector industries such as cement, iron and steel—who are looking at capacity expansion. It is an indication that additional demand is what is coming in and is likely to sustain."