In Delhi, A decision to reduce goods and services tax (GST) on automobiles and other products will be a political call even as finance ministry officials remain unconvinced of the utility of surrendering to the clamor for a rate cut. They point out both – lack of tax space and doubts whether such a measure will really point the causes for the slowdown in the sectors.
Already, collections from automobiles are down from around Rs 15,000 crore a month to Rs 10,000-11,000 crore, and the compensation does not have sufficient corpus – funded by putting restrictions on cars, tobacco and soft drinks – to pay states for any GST “shortfall”.
Under the agreement with states, the Centre has to compensate those that do not see 14% or higher annual GST growth for five years.Collections have so far this tax grown at over 6% against the asking rate of 13%.
Auto lobby has been the most vocal in its demand, the finance ministry has so far refused to cut the charges, which adds up to 43%, including a 15% ristrictions on mid-sized and large cars above the 28% tax.
Industry representatives have told the finance ministry that collections may drop further as they see a sharper slowdown in coming months.
Finance ministry officials see the GST Council meeting on September 20 as the last option for a rate reduction, ahead of the festive season when cars and durables sales get a boost. But they find little merit in the demand with some of them conceding that consumers are deferring purchases due to weak expectations on their income growth in the coming months.