GST cloud hangs over excise mop-up as dealers hold up tight

New Delhi: Excise collections may take a hit as dealers are refraining from purchasing goods from manufacturers as they are not sure about tax credits and rates under GST, which is slated for July 1 launch.

The GST Council will meet on May 18-19 to decide on the rates, and sources said tax rates of as many as 6,000 products have to be decided.

In view of this uncertainty and also the transitory mechanism for availing of credit on tax paid prior to the GST kick-off, dealers are choosing to wait and watch rather than buy and holding on to inventories.

This state of flux will have a direct bearing on excise collections during April-June, said experts. PwC National Leader (indirect tax) Pratik Jain said that given the apprehension about the loss of credit in the case of transition stocks, there is an attempt to reduce the inventory level, which is impacting the sales of most consumer products in the current quarter.

"Therefore, excise duty collection this quarter may fall unless the government provides higher percentage of deemed credit (currently proposed at 40 per cent of CGST)," Jain said.

GST will subsume 10 different levies, including excise, service tax and VAT, and will create a unified market for seamless transfer of goods and services. The GST Council, comprising Union and state finance ministers, has decided on a four-tier tax structure of 5, 12, 18 and 28 per cent. Besides, for demerit and luxury goods, a cess will be levied on top of the peak rate.

The cess will be used to compensate the states for revenue loss arising out of GST implementation. The fitment committee comprising central and state officials has worked out tax rates on various goods and services and the report will be placed before the GST Council at its May 18-19 meeting.

Tax rate closest to the present incidence on a goods or service will be chosen with a view to keeping the shift from the present regime neutral for consumers. The tax rates will be decided in a fashion to keep their impact on inflation as well as revenues to the government near neutral.