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GST cess hikes on cigarettes

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New Delhi, July 18: The GST Council raised the cess rates on cigarettes in view of the reduction in tax on the demerit good. Additional revenue of Rs 5,000 crore will be generated with the decision.

“In the first 15 days of GST implementation, it was noted that 28 per cent tax plus compensation cess on cigarettes, when translated, had not factored in the impact of cascading effect, resulting in windfall gains for cigarette companies,” Finance Minister Arun Jaitley.

“The total tax incidence on cigarettes in the GST regime has come down, compared with total tax in pre-GST regime. While any reduction in tax incidence on items of mass consumption would be welcome, the same would be unacceptable in case of demerit goods like cigarettes,” the Finance Ministry said.

Highest rate of GST on cigarettes ie. 28 per cent, earlier it was VAT rate of 28.7 per cent.

The compensation cess on cigarettes consists of two components – an ad valorem tax of 5 per cent and a numerical amount on cigarettes.

Only the numerical amount was increased from Monday by the Council.

For non-filter 65 mm cigarettes, the numerical cess has been raised to Rs 2,076 per 1,000 units and for 65-70 mm cigarettes it is Rs 3,668 per 1,000 units.

For filter category, 65 mm cigarettes will be charged Rs 2,076 per 1,000 units, 65-70 mm will be charged Rs 2,747 per 1,000 units and 70-75 mm will be charged Rs 3,668 per 1,000 units.

For other filter cigarettes the ad valorem has been increased to 36 per cent plus Rs 4,170 per 1,000 units.

“The anomaly was noticed within 15 days of GST implementation. The lower incidence would have reflected either in companies reducing the prices of cigarettes, which is not advisable, or transfer of the profit to their balance sheets,” he added.

This decision was taken unanimously by all states.

“This figure will comfortably exceed the original number of taxpayers. It is evident that there has been an increase in the taxpayer base,” Jaitley said.

Wefornews Bureau

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Fitch says India’s GDP to expand by 11% in FY22

It added that India’s medium-term growth to slow to around 6.5 per cent after the initial rebound.

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GDP means for you and me

Fitch Ratings says India’s GDP to expand by 11% in 2021-22 after falling by 9.4% in current FY21 fiscal.

It added that India’s medium-term growth to slow to around 6.5 per cent after the initial rebound.

India’s coronavirus-induced recession has been among the most severe in the world, amid a stringent lockdown and limited direct fiscal support. The economy is now in a recovery phase that will be further supported by the rollout of vaccines in the next months and we expect GDP to expand by 11.0% in FY22 after falling by 9.4% in FY21.

However, we expect the medium-term recovery to be slow. Supply-side potential growth will be reduced by a slowdown in the rate of capital accumulation – investment has recently fallen sharply and is likely to see only a subdued recovery. This will weigh on labour productivity and our projection of supply-side potential GDP growth for the six-year period FY21 to FY26 has been lowered to 5.1% p.a. compared to our pre-pandemic projection of 7% p.a.

Our historical analysis of India’s growth performance highlights the key role played by a high investment rate in driving growth in labour productivity and GDP per capita over the last fifteen years.

But investment has fallen sharply over the last year and the need to repair corporate balance sheets and firm closures will weigh on the pace of recovery.

Constrained credit supply amid a fragile financial system is another headwind for investment. The banking sector entered the crisis with generally weak asset quality and limited capital buffers. Appetite for lending will be subdued, particularly as credit-guarantee and forbearance measures rolled out in the crisis start to be unwound.

The economy should be able to grow somewhat faster than estimated supply-side potential over the medium term following the unprecedented downturn in FY21. But our projection for the medium-term recovery path – at around 6.5% p.a. over FY23 to FY26 – would leave GDP well below its pre-pandemic trend.

The research report, “India Set for Slow Medium-Term Recovery” is available at the above link and at www.fitchratings.com.

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Maharashtra stops automatic adoption of Centre’s GST circulars

What this means is that the state would have flexibility in devising regulations to suit its interest rather than blindly following the central circulars.

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Uddhav Thackeray

New Delhi, Jan 14: In a clear case of defiance of the Centre’s authority on GST matters, the Maharashtra government has decided that the state would have the last say in the applicability of circulars defining regulations on issues of the indirect tax.

A circular issued by the Maharashtra Goods and Service Tax Department (MGSTD) on January 12 says that the state would examine all circulars issued by the Central Board of Indirect Taxes and Customs (CBIC), and upon examination, issue a separate circular regarding its applicability for the implementation of the MGST Act.

With this, the state also withdrew an earlier circular no. 39 T of 2019 that provided for deemed adoption of all circulars issued by the CBIC by the MGSTD. The state, however, said that all central circulars issued till withdrawal of this circular would enjoy status quo and would be adopted for implementation of the MGST Act.

What this means is that the state would have flexibility in devising regulations to suit its interest rather than blindly following the central circulars.

In the fourth year since the GST’s implementation, this is second major resistance mounted by states over implementation of GST laws. The states already strongly resisted the Centre’s move on GST compensation and pushed it to frame regulations that protected their interest.

“Biggest fears of model code for a federal democratic country like India are coming true even before the completion of its 4th anniversary of GST. Fight between the Centre and states over compensation for loss has already reached judiciary, and now the state government of Maharashtra has also issued clear instructions that they will have parallel set clarifications on same matters which will supersede the clarifications issued by the Central government,” said Rajat Mohan, senior partner, AMRG and Associates.

Maharashtra has justified its move suggesting that it is to maintain the integrity of communication and avoid confusion caused as to which circular instructions are to be followed. Sources, however, said it has been done as on several matters, states had a divergent view on how things needed to be implemented. In additional, unique nature operational issues in the state, created difficulties in adoption of central regulations.

Sources said that the Maharashtra government’s decision would further weaken the process of decisions being taken unanimously by the GST Council.

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Modi Govt to sell up to 10% stake in SAIL via OFS

Shares of SAIL on the BSE closed at Rs 74.70 per share, lower by 1.58 per cent from its previous close on Wednesday.

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Steel Authority of India

New Delhi, Jan 14: The Centre will sell up to 10 per cent stake in Steel Authority of India Ltd (SAIL) through offer for sale (OFS).

The OFS will take place on Thursday and Friday.

“Offer for Sale (OFS) in SAIL opens on Thursday (14.1.2021) for non-retail investors. 15th January (Friday) is for retail investors. GoI would divest 5 per cent equity with a 5 per cent greenshoe option,” said Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM) on Twitter.

The floor price for the OFS has been set at Rs 64 per share.

Shares of SAIL on the BSE closed at Rs 74.70 per share, lower by 1.58 per cent from its previous close on Wednesday.

The government is likely to miss its disinvestment target by a wide margin and the fiscal deficit is not likely to be anywhere near the target of 3.5 per cent of the GDP in 2020-21 (April 2020 to March 2021). While privatisation of firms such as Bharat Petroleum Corporation Ltd (BPCL) and Air India has been pushed to the next fiscal due to COVID-19-related delays, tax collections have been hit hard as restrictions imposed to curb coronavirus dented incomes all around.

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