Economy Policy: Rs 63,000-crore compensation cess shortfall in 2019-20

On Wednesday,Goods and Services tax council  told that the central government might have a compensation tax shortage of Rs 63,200 crore in the current financial year. 

The Council's revenue augmentation panel  says that, the shortage could increase into Rs 2 trillion by 2021-22. At present,the revenue growth is five per cent ; actual growth in April-November, the initial eight
months of the financial year, was 3.7 per cent.

The panel presented a best method with a growth rate of 10 per cent and there will be a cess gap of Rs  96,360 crore in 2020-21 and of Rs 1.36 trillion in 2021

-22. And, it has eliminated the possibility of 10 per cent, or even eight per cent, revenue growth for the current year.

Although the panel does not see any scope for raising the compensation cess rates.so there is no significant revenue to meet that gap.Instead, it has recommended that the present inverted  structure be corrected, before restructuring of GST rate slabs.

Punjab finance minister Manpreet Badal said that, the  presented revenue picture was much worser than anticipated. And now State finance ministers will  have to comment on the presentation. 

The panel has listed 24 items -- including mobile phones, footwear, fabrics, LED lights, medical equipment, utensils, agricultural machinery, pharmaceuticals and renewable components — that have an inverted duty structure. It shows refunding about  Rs 20,000 crore annually.At present, the GST rate on mobile phones is 12 per cent; that on phone parts and batteries is 18 per cent.The inverted structure  creates  unutilised input tax credit (ITC). A registered taxpayer can claim refunds on the ITC on account of a higher tax on inputs and lower tax on outputs.  The effect of such  structure is resulting in huge input tax credit outgo. Apart from distortion and litigation. Another alternative recommendations from the panel for augmenting of revenue include a two-slab GST structure of 10 and 20 per cent, as against the current four-slab one, and it also suggests a special higher rate for 'sin' and luxury goods. Also, low down of the excluded  items list and raising the composition rate for manufacturers from the current one per cent.

On covering of leakages, it suggests an MRP (Maximum Retail Price) based tax  on items such as pharmaceuticals or goods sold to final consumers. It has listed suggestions on revenue augmentation from states and recommended moving items from the 5 per cent and 12 per cent lists to higher slabs.Currently some of the discharged items under GST care education, health, public transport, house rent, cereals, fruit, jaggery, honey, bread, salt, milk, printed books and kajal.

On expanding and justification of GST rates, some of the suggestions it has arranged include raising the rate on precious metals from three per cent now to five per cent, taxing the higher segments of education and health, and revisiting the rates on some items that have been reduced from the earlier 28 per cent to 18 per cent.