India puts GST rate tweaks on hold till it has a grip on inflation


The delay in the Goods and Services Tax (GST) rate rationalization exercise due to inflationary pressures and geopolitical tensions, a senior finance ministry official said as part of remarks about the economy, asset sales and the government’s lending programme. likely to happen.

The Center has sought legal opinion on the disinvestment of Pawan Hans and Central Electronics Ltd (CEL), which is running into complications due to allegations involving successful bidders, the official said.

The government will stick to its market borrowing plan for now and explore other options to raise funds to meet the high food and fertilizer subsidies and loss of revenue due to inflation-control measures taken in the past few days.

The Group of Ministers (GoM) constituted by the GST Council to review the rates is yet to finalize its report.

Most essential in 5% slab

But both the Center and the states agree that this may not be the right time for such an exercise, given India’s high inflation. The lower slab would mean that GST on some items could go up, which could make goods costlier at a time when consumer inflation has hit an eight-year high of 7.79%.

“With inflation at this stage, rate rationalization is difficult and will have to wait till the situation improves,” the official said.

The GST Council is likely to meet in June. It is expected to take the report of another GoM, chaired by Meghalaya Chief Minister Conrad Sangma, which favors the highest rate of 28% on online gaming, racing and casinos. The council is also expected to discuss the integrated GST on maritime goods, which was struck down by the Supreme Court in a recent order.

The council had last year constituted a GoM under the chairmanship of Karnataka Chief Minister Basavaraj Bommai to suggest changes in the GST rate structure. It was tasked with suggesting rate changes to correct inverted duty structures and reducing the number of GST slabs to just three from the existing 5%, 12%, 18% and 28%.

ET had reported that states are not in favor of any change in rates due to high inflation. Most of the essentials are in the 5% slab.

disinvestment

The Center is studying the disinvestment of Pawan Hans and CEL before deciding its course of action.

“We are taking legal opinion on whether to restart the process or work again with existing bidders,” the person said, adding that the government is seeking suggestions from the law ministry.

The government will increase scrutiny of the disinvestment process to avoid similar situations. It will go ahead with the planned privatization of the two state-owned banks and try to finish the process this financial year, giving it additional resources.

The government has budgeted Rs 65,000 crore from disinvestment in FY 2013. The Center would require all resources to fund the food and fertilizer subsidy bills, which could exceed the budgetary allocation by about Rs 1.80 lakh crore.

The recent measures to check inflation will also result in loss of tax revenue for the government. The Center on Saturday announced reduction in excise duty on petrol and diesel, which is expected to result in loss of revenue of around Rs 1 lakh crore annually. Reduction in import duty on steel and plastic inputs and abolition of it on some edible oils will also result in revenue loss.

credit plan

Officials have indicated that the government will stick to its borrowing target for FY13. It can use other resources to fund the budget and even borrow from the Consolidated Fund of India with the permission of Parliament to continue its infrastructure spending program Recovery is the cornerstone of the plan.

“We have discussed the revenue implications and can go for other resources, including borrowing from the Consolidated Fund of India,” the official said, adding that the Center is not going to cut its budget by ₹23 for FY23. 7.5 lakh crore capital expenditure. Finance ministry sources had indicated that the Center may require an additional borrowing of ₹1 lakh crore.

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