Nirmala Sitharaman hints GST rates may be rejigged later

Nirmala Sitharaman

Finance minister Nirmala Sitharaman today said her ministry has not had ‘enough discussions’ about changing GST slabs, but did not rule out the possibility of such a move coming about soon.

“I don’t think we have had enough discussion even within the ministry, yet, on this slabs and rates,” she said at the India Economic Conclave organized by the Time Group in Mumbai today.

She was responding to a question that there is widespread talk that the center wants to raise the rates of the Goods and Services Tax — including the starting slab of 5% — to augment tax collections.

“This discussion is everywhere else, except my office,” Sitharaman went on. “So, I don’t think I’m talking about raising or rationalizing the slabs at all at this stage. But eventually, some time, may be the GST council would want to talk about it.

“But I’ve not readied myself for this particular meeting on this particular issue. That is why I keep repeating, this is a buzz everywhere but not so much in my team,” she added, referring to Wednesday’s meeting of the GST council.

The center will need the support of 50% of the states to push through any change in GST rates.

The comments come in the context of GST collections falling about 40% below expectations this year so far. This has forced the center to defaulted on the money it is supposed to pay to the states in case GST collections fall below a threshold, and pushed many states to the brink of bankruptcy.

The finance minister’s comments indicate that there may be some truth to reports that the government is thinking about raising taxes. Interestingly, the government had recently cut taxes on companies, saying that doing so will help companies spend more and in turn help revive a slowing economy.

The move was criticized for failing to acknowledge the fact that India’s economy is largely led by consumption, and not by investment, and that companies are not going to invest money into creating new factories and retail outlets if consumption remains weak.

Consumption in turn has remained weak due to widespread fears among ordinary people that their sources of income may not be around to support them in the near future.

An increase in GST, which will hurt consumers, may dampen consumption even more and has been publicly opposed by several states, including those ruled by the NDA, of which Sitharaman is a part.

The minister also said the decline in GST collection was caused by a multitude of factors. She said many districts were affected by floods during this monsoon season, and businesses in these districts were given a two-month extension as far as filing their GST returns were concerned.

“Some districts which have huge potential have been affected by floods,” she pointed out, adding that an overall slowdown in the economy is also likely to be impacting GST collections.

“In some districts, there have been challenges as a result of which consumption would have come down, and [because] this is a consumption-based tax, collections would have come down…

“So there have several reasons, all of which have resulted in one consequence, which is that the growth in the collections is not as much as we would have wanted it to be,” Sitharam said.