The Goods & Services Tax (GST) Council held a meeting against the backdrop of India’s economic growth reaching a six-year low. The meeting, which took place on 20th September 2019, aimed to discuss and decide upon tax moderation, considering both the present revenue position and the need to stimulate the declining economy.
Context of the Meeting
The 37th GST Council meeting was conducted in Goa in light of the dip in economic growth to a mere 5% for the first quarter of the current fiscal year, which spans from April to June 2019. This marked a six-year low in growth, a concerning statistic that prompted demands from various sectors, including biscuits, automobiles, Fast Moving Consumer Goods (FMCG), and hotels. These sectors called for a resort to reduced tax rates as a way to remedy the economic slowdown.
Decisions Taken During the Meeting
In response to the formation of Union Territories of Jammu and Kashmir and Ladakh, the council approved amendments to the Central GST Act, the Union Territories’ GST Act, and the corresponding State GST Acts. Additionally, the council slashed tax rates on many products and services, such as jewellery stones, hotel stays, and outdoor catering, in order to ease the burden on small and medium-sized enterprises.
About the GST Council
The GST Council is a constitutional body that provides recommendations to the Union and State Government on matters related to Goods and Service Tax. Chaired by the Union Finance Minister, its members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation from all the States. The GST Council functions as a federal body where both the center and the states are given equal representation.
Further Tax Changes: Corporate Tax Rate Reduction
The central government took a major step toward bridging the economic deficit by slashing corporate tax rates. For domestic firms, the rate dropped from 30% to 22%, and for new manufacturing companies, rates decreased from 25% to 15%.
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| Domestic Firms | 30% | 22% |
| New Manufacturing Companies | 25% | 15% |
The Impact of Corporate Tax Reduction
The reduced corporate tax will be applicable to those companies who forego the current exemptions and incentives. Furthermore, the Minimum Alternate Tax (MAT) will no longer apply to such companies. This move by the government is expected to cost around Rs 1.45 lakh crore annually, which may result in a higher fiscal deficit.
The corporate tax reduction is intended to stimulate the ‘Make In India’ initiative, attract private investment from across the globe, improve the competitiveness of the private sector, and create more jobs. This decision effectively aligns India’s ‘headline’ corporate tax rate with an average of 23% rate in Asian countries. The revised rates will be effective from 1st April 2019 for domestic companies and for new domestic companies incorporated on or after 1st October 2019 that commence production on or before 31st March 2023.
