The government’s goods and services tax (GST) rate cuts are expected to stimulate demand but could also leave states with revenue concerns, former CBEC Chairman Najib Shah said.
“This is something which everybody had been asking for… it should stimulate demand in the economy,” Shah said. But he noted that “there will be a revenue loss for the states and the centre,” with estimates ranging between ₹85,000 crore and ₹1.5 lakh crore. He added, “Some degree of hand-holding may be required and necessary,” to help states adjust.
Shah also said the government will need to ensure that the tax reductions benefit consumers directly. “Having taken this bold step in reducing the slabs, they would necessarily expect benefit to pass on to the consumers,” he said.
An Tax expert, echoed concerns on revenue impact but said the effect could be offset. “When the rate goes down, it increases the consumption, and therefore, to some extent, the impact of revenue loss is neutralised,” he explained. He added that India’s post-cut GST rate of around 10% would be “very moderate” compared to other economies.
On autos, he said smaller cars would benefit more from GST changes. “Smaller cars will benefit… bigger cars either the incidence should go down slightly, or should be continued at the same level,” he said.
Both pointed out transitional challenges. Shah noted possible accumulation of input tax credit, while Jain highlighted issues for dealers and wholesalers holding stock purchased under the old rates. “Some bit of guidance from the GST Council is expected,” he said.
Source from: https://www.cnbctv18.com/economy/gst-rate-rationalisation-compliance-support-to-states-ex-cbec-chairman-19660874.htm
