A panel tasked with recommending producer levies has ruled out changes in taxes on cars, consumer durables or cookies, dashing hopes of a reduction in Goods and Services Tax (GST) for automobiles and other consumption oriented industries.

The Fitment Committee’s recommendations, which will be discussed by the 37th GST Council in its meeting on 20th September, blamed the current liquidity crisis and troubles of non-bank lenders for the woes of the automobile sector, which has seen its worst sales decline in about two decades.

“The Fitment Committee does not recommend any reduction in the present GST rate, on account of huge revenue implications, besides the fact that several other factors also have impact on the demand – like liquidity crunch, crisis affecting NBFC, axle load increase, abolition of check-posts after introduction of GST, cyclical nature of the industry, and structural changes like BS-IV to BS-VI,” the panel said in its 286-page recommendations to the council.

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ET has seen a copy of the report. Several industries have sought GST cuts to prop up the Indian economy, which has slowed to a six-year low. Auto industry players have sought a GST cut to help revive the sector. The committee also decided not to tinker with the present GST structure for biscuits, bakery products, breakfast cereals, fruits and vegetables, mineral water, ready-to-eat packaged items, and several other food products.

“Biscuits are manufactured in the organized sector and by bakeries etc. Having two different slabs for biscuits based on the selling price will be prone to evasion. The Fitment Committee does not recommend any reduction in the present GST rate,” the report said.

Parle executive Mayank Shah had said last month that he expects the levy on cheaper biscuits to be reduced from the existing 18%. Biscuits costing less than Rs 100 a kg were taxed at 12% under the previous tax regime, and firms had assumed the GST rate to be fixed at 12% for premium biscuits and 5% for the lowerpriced ones. But under the GST regime, all biscuits were brought under the 18% tax structure, forcing companies to increase prices, affecting sales.

A cut in GST rate would lead to thousands of crores of rupees in tax shortfall for the government, which is struggling to maintain its fiscal deficit at 3.3% for the current year after crossing 77% of its annual target in July.

“The GST Council would take into account the GST collections, which have been below targets until now, before deciding on any reduction in rates. Since there appears to be a shortfall in the compensation cess collections, any reductions in cess would also pose a challenge,” said M S Mani, Partner, Deloitte India.

People in the know said that the government may relook at the compensation cess on certain categories of cars besides GST on auto components, as there may be no real impact on tax revenues. “There could be some minor changes like the cess on certain category of cars, mainly the small cars. Apart from that, the GST on auto components could be slashed by 10% as there would be no revenue impact,” said a person in the know.

The committee has also recommended tax rates be increased from 5% to 12% after a demand from railway coach manufacturers, which could not set off input tax credits and faced cash-flow problems.





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