NEW DELHI: An expected spurt in consumption once the new Goods and Services Tax (GST) rates take effect from September 22, coinciding with the festival season, will most probably help the government meet its revenue, and fiscal deficit, targets by the end of the financial year without any expenditure cuts, Union finance minister Nirmala Sitharaman said on Friday.
In an interview with Hindustan Times, Sitharaman said the finance ministry would continue with reforms and that she would recommend to the GST council, the apex body on indirect taxes, that rates should be changed only once in the fiscal year to make it easier for companies to plan for the entire year.
Her comments came two days after the GST Council approved the most sweeping overhaul of the country’s consumption tax since its 2017 launch, reducing the number of slabs from four to two (5% and 18%) , with a special one (40%) for so-called sin goods, consequently lowering the rates on a wide range of goods and services.
The government is expecting that the net revenue impact from the changes, a shortfall seen at around ₹48,000 crore at last year’s levels of consumption, would be counterbalanced by higher indirect tax collections arising from greater demand post September 22, which coincides with multiple festivals in the country.
{{/usCountry}}The government is expecting that the net revenue impact from the changes, a shortfall seen at around ₹48,000 crore at last year’s levels of consumption, would be counterbalanced by higher indirect tax collections arising from greater demand post September 22, which coincides with multiple festivals in the country.
{{/usCountry}}“We have had industry tell us, in cars, white goods…that bookings are not happening, that people are deferring purchases. In all likelihood, from September 22, people will go out and buy, just like they did post-Covid,” Sitharaman said.
“If the festive season is good, and like every year, people go out to buy their, whatever wishes, the aspirational products and so on. This financial year itself, we’ll be able to sort of make-up,” she added. “I am also saying my fiscal deficit will be in line as promised.” While presenting the Budget for the current financial year in February, the minister had targeted a fiscal deficit of 4.4% of the GDP.
Asked if this spurt in buying would broadly help overcome the impact of the 50% tariffs imposed by US President Donald Trump on Indian exports to America, Sitharaman said this could broadly be the case. “But that wasn’t our intention. The changes (to GST) weren’t motivated by the tariffs, but in an economy you can’t have water-tight compartments,” she said.
Sitharaman added that her focus will now shift to ensuring the transmission of the rate cuts. “I will see what they (industry) need to do. I have to check by sector. We will closely follow it.”