Acceding to the demands from several industrial segments, small traders and producers and keeping the interests of relatively low-income consumers in mind, the Goods and Services Tax (GST) Council on Sunday decided to lower the tax burdens on them in the upcoming GST regime. Even as these concessions per se would lead to a significant reduction in the overall weighted average tax rate from what it is now and could have an adverse impact on government revenue, finance minister Arun Jaitley said the resultant check on inflation and the likely revenue buoyancy from an expanded tax base would still yield wholesome gains.
At its 16th meeting, the council brought down the tax rates from the level prescribed earlier for as many as 66 items ranging from the most common packaged foods to school bags, computer printers, tractor components and insulin. Additionally, the scope of the composition scheme — which allows small businesses to pay tax as a relatively small percentage of turnover without input tax credit, instead of paying full GST on the value added — has been expanded to include all businesses with annual turnover up to Rs 75 lakh (the limit was earlier set at `50 lakh). The council also drastically reduced the GST (service tax) rate on job workers in labour-intensive industries namely clothing, leather, jewellery, diamond processing and printing from 18% proposed earlier to 5%, in a move that would incentivise outsourcing of jobs by the relevant industries and give a big relief to lakhs of job workers and artisans.
While entertainment tax (ET) levied by the states on cinema tickets are to be subsumed in GST, the council has decided to keep the corresponding GST rates at 18% for tickets up to Rs 100 and at 28% for others. The ET now varies from 20-110%, with 30% roughly the weighted average.
Jaitley said the states might continue to give tax concessions for films made in their local languages but that would be in the form of direct transfers (state GST refunds) rather than exemptions.
The result of UK election, which threw up a hung Parliament with the ruling Conservative party failing to muster a simple majority, will add to geopolitical uncertainty and increase risks for global businesses including India Inc, industry body Assocham said. “Prime Minister Theresa May losing majority for her Conservative party in British Parliament, just days ahead of the scheduled negotiations on the Brexit with the European Union would mean more uncertainties for a host of sectors like financial services, visa policies, trade and services like IT. “Besides, there would be volatility in the foreign exchange markets in the short term, at least,” said Assocham Secretary General D S Rawat.
He said if one adds the outcome of the UK election to what is happening in the US and the impact being felt on the Indian businesses, mainly IT and geo-political, uncertainties are on the higher side.
Inflation in India is expected to have cooled to a new record low in May, a Reuters poll found, which could add pressure on the Reserve Bank of India to cut interest rates later in the year. The consumer price index likely rose 2.60 percent in May from a year earlier, dipping from 2.99 percent in April, due to a fall in the cost of pulses, cereals and perishable goods, according to the poll of 25 economists. That would be the lowest level since the series began in 2012 and remain below the RBI’s medium-term target of 4.0 percent for the seventh successive month. Forecasts ranged from 2.26 percent to 3.49 percent. The data will be released on June 12 at 1200 GMT. “Consumer inflation touched an all-time low for the first time in the new series in May as food prices dipped into a negative territory on a yearly basis,” said Tushar Arora, senior economist at HDFC Bank. “In addition, petrol and diesel prices were also reduced last month.” Food and beverage price inflation, which accounts for nearly 50 percent of the consumer price index basket, eased to 0.61 percent in April, significantly lower than the previous year’s high of 8.35 percent in July. The India Meteorological Department has forecast an above-average monsoon rainfall this year, crucial in an economy where two-thirds of the population depend on farming for their livelihood. A good June-September monsoon, which delivers about 70 percent of India’s annual rainfall, will help drive higher food and grain production, keeping food inflation in check. India’s central bank on Wednesday kept its benchmark interest rate unchanged while softening its hawkish stance following a drop in consumer inflation, as predicted in a Reuters poll.
The Reserve Bank is expected to cut key policy rates by 25 bps on August 2, which in turn will signal banks to cut lending rates before the busy industrial season sets in October, says a report.
According to Bank of America Merrill Lynch, further delays in RBI rate cuts will likely endanger the much-needed bank lending rate cut before the busy industrial season. “If the RBI MPC cuts on August 2, it will signal a lending rate cut to banks… After all, real lending rates are running at a 20-year high,” BofAML said in a research note. BofAML expects the RBI MPC to cut rates by 25 bps on August 2 if the rains are normal.
The global brokerage firm noted that May CPI inflation is expected at about 2.5 per cent and daily data show food inflation is falling even further in June on a good summer rabi harvest while the India Met has also upgraded its monsoon forecast to 98 per cent of normal from 96 per cent with the El Nino weakening. Further, core CPI inflation has slipped to a low 4.1 per cent. In the monetary policy review on June 7, RBI left key rates unchanged with Governor Urjit Patel noting that the central bank wanted to be more sure that inflation will stay subdued. BofAML said that it disagrees with RBI MPC which said that “…premature action at this stage risks disruptive policy reversals later and the loss of credibility”.
It further noted that further delays in RBI rate cuts will likely endanger the much-needed bank lending rate cut before the busy industrial season sets in October.