Home >Politics >Policy >GST rate cuts may lower tax revenue by 15,000 crore a year

New Delhi: India’s move to slash levies on more than 50 goods will lower revenue by as much as 15,000 crore ($2.2 billion) each year, according to people familiar with the matter. A panel of central and state finance ministers late on Saturday cut the goods and services tax on items from washing machines and lithium-ion batteries to stone-carved deities and sanitary napkins as Prime Minister Narendra Modi looks to boost sentiment and growth before he faces re-election next year.

Revenue loss will be minimal, interim finance minister Piyush Goyal told reporters at a subsequent briefing in New Delhi without elaborating.

However, officials who didn’t wish to be identified as they aren’t authorized to speak to the media, shared a figure that works out to be as high as 1% of tax budgeted to accrue to the federal government. The administration can ill afford to forfeit revenue as rising oil prices threaten to widen India’s fiscal deficit and global borrowing costs rise.

The new GST rates are effective July 27 and the panel will meet again on August 4 to discuss issues faced by small businesses. Finance Ministry spokesman DS Malik didn’t reply to a phone call outside of business hours on Sunday.

Revenue Concerns

India’s GST is just over one-year-old and the panel has already revised rates several times. The latest reduction comes before polls later this year in the states of Madhya Pradesh and Rajasthan, both governed by Modi’s Bharatiya Janata Party (BJP). Tax cuts on the last few occasions came closer to the date of some state polls, lending strength to arguments it was done for electoral gains.

Modi needs resources to boost welfare spending before the general election in 2019. Monthly GST receipts have picked up after teething troubles, but are still not strong enough to meet the government’s annual tax target of about 15 trillion rupees.

GST, touted as one of the biggest reforms of the Modi government, replaced a myriad of levies with a nationwide sales tax. Its introduction was marred by glitches and business disruptions.

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