Coin explanator | GST cuts are large. How can the government afford it?

Copyright © HT Digital Streams Limit all rights reserved. The elimination of the strike, which was charged for specified time-bound purposes, enabled a simpler GST structure with lower rate. Summary in the largest GST reform to date has moved the government most products in the 12% page and some in the 18% page stopped to 5%, and stopped the remuneration task. How did it all do it without destroying its tax revenue? Last month, the GST Council has implemented the largest reform so far in the eight-year-old indirect tax system, trying to simplify and simulate it. More measures to make GST more user -friendly are in the offense, and policymakers expect the tax cuts and the simpler structure to increase India’s economic growth and investments. The reforms not only lowered the tax burden, but also eliminated the 12% and 28% pages. Most products in the 12% page and some in the 18% page were moved to 5%. Small cars were moved from 28% to 18%, and even sports utility vehicles had an effective cut of 45-50% to 40%. In addition, the GST compensation chess, which brought £ 1.49 trillion into FY25, was discontinued. So how could the government carry out such significant cuts without cratering its tax revenue? Mint looks at the fiscal calculations that support the reform. What is the official estimate of the fiscal impact of the GST reforms on the treasure chest and the scope of the stimulus? When the tax reform was announced last month, Arind Shrivastava, secretary of revenue, said the “net income implication” of taxplate restructuring is about £ 48,000 based on the FY24 consumption data. Regarding the consumption stimulus of the tax reform, GST Council Minister Nirmala Sitharaman later said that the tax relief would apply £ 2 trillion in the economy. Check out Full Image Union Finance Minister and chairman of the GST Council Nirmala Sitharaman. (Bloomberg) The official position is that the money not raised by the government will find its way to the economy through expenses, and that higher consumption, tax capacity and easier compliance will increase tax revenue receipts. Shrivastava said the restructuring is “fiscal sustainable”. Corporate announcements and obligations of operational bodies of a full passage of tax relief to consumers on products and services-including cars, other durable consumers, food products and health and life insurance policies do indeed reduce prices. How can the government limit revenue, despite significant tax cuts? The most important factor that enabled the tax reduction was the strike of the GST compensation rod, effective on September 22 (with the distribution of tobacco products, which will be phased out in the near future). The Cess was an additional levy on certain goods such as cars and tobacco collected by the central government. The sole purpose of this was to compensate state governments for any loss of income that they entered into during the first five years of transition to the GST regime from July 2017. The period ended in 2022, but the strike was retained to repay the center to provide liquidity support to states during the pandemic, and was originally due to March or earlier. In FY25, the central government raised £ 1.49 billion in the strike. A person who is aware of the discussions in government, who does not want to be mentioned, created the obstacle that immediately created fiscal space for tax cuts. The tax cut, including on essential items, was therefore made possible by the expiry of the strike. Even the new special rate of 40% for SUVs is lower compared to the earlier effective rate of 45-50%, including the strike. The elimination of the strike, which was charged for specified time-bound purposes, enabled a simpler GST structure with lower rate. And instead of only reducing the tax on the few items that previously had the Cess (such as cars), the government spread the cuts over a greater variety of goods and services. This has enabled to announce significant rate cuts for essentials and items used by the middle and lower classes, thus maximizing public benefit and increasing consumption. “The government was aware of the need to have fewer GST pages, but the expiry of the strike gave the right opportunity to implement it with great benefits for consumers in the social strata,” the person quoted above. Are there early signs of a consumption increase? Some early indicators show a strong increase in consumption. Earlier this week, the Federation of Automobile Dealers Association said that total retail sales increased by 34% annually in September. The momentum was particularly visible at two -wheelers (36%), three wheelers (24.5%), passenger vehicles (34.8%) and commercial vehicles (14.8%). Other high-frequency indicators such as GST income raised from September and e-way exchange for the month have yet to be released. Maruti said on October 1 that the GST reforms significantly improved the client’s sentiment, as reflected in the highest deliveries of 165,000 units in the first eight days of the Navratri festival. Maruti reported that the GST reforms of India increased the sentiment of the client, which drove a record of 165,000 vehicles in the first eight days of the Navratri festival. However, it may take time before this favorable consumer sentiment is reflected in actual manufacturing data. The HSBC India Manufacturing Purchase Managers Index (PMI) stood at 57.7 in September, comfortably above the 50 -point that separates the expansion and contraction from each other. The PMI reading remained well above the long-term average, although it lost a momentum from August. What is the ultimate goal of the reforms? Even as external factors such as US rates and visa restrictions increase uncertainty in business planning, policymakers expect a positive sentiment from consumers and a higher demand for consumption of reforms, along with greater liquidity and interest rate cuts to accelerate private investments. It is the hope of such a revival of private investment to supplement its own capital expenditure, increase economic growth and create jobs. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #ExPlainer #GST Read Next Story