Advanced Budget date: Absence of a GST rate may present estimation challenges

By | October 12, 2016
(Last Updated On: October 12, 2016)

The government’s in-principle approval for the advancement of the date of Budget presentation notwithstanding its other big-ticket reform move of rolling out the Goods and Services Tax (GST) regime by early next fiscal could prove to be a hurdle in the plan for an early presentation of the government’s annual statement of accounts. The possibility of the lack of clear revenue projections on account of the shift to the GST regime in the next financial year – 2017-18 – is causing some concern among the top government officials as they work to move up the Budget presentation date.

The decision regarding the taxation rate for GST, which is intended to be rolled out from April 1, 2017, is pivotal in the finalisation of the revamped Budget process for next financial year. “It will be very tough Working out the revenue estimates would be tough because GST’s rate might not be finalised well in time before the Budget. If April 1 is the rollout target, most likely the decision in the GST council will not come to a conclusion on time, political posturing will go on. It’s going to be a tough exercise…,” a key policymaker in the NDA government told The Indian Express.

Within the finance ministry, officials of the Budget division and Revenue Department are scheduled to hold a series of meetings this month regarding the revenue projections for GST for next year. “It has not yet been decided how the revenue projections will be made for next year. Whether it should be a statistical projection or a clubbing of excise duty and service tax data from this year to make a projection for next year. Discussions are taking place within the departments of the (finance) ministry,” another government official involved in the Budget making process said.

Finance ministry officials have expressed some degree of nervousness about the GST projections, pinning their hopes on the GST Council reaching a consensus on the tax rate structure before the Budget making process to enable them to make projections for next year. Usually, the finance ministry begins its pre-Budget meetings by October-end for determining the revised estimates for the ongoing financial year and estimates for the next financial year. The meetings, which are held with representatives of various government departments and ministries, go on till first week of December, after which the ministry firms up the revised estimates.

The GST Council, which is headed by finance minister Arun Jaitley and has representatives from all states and union territories, will hold a three-day meeting beginning October 18 to discuss the crucial GST rate. The Council is already grappling with pending issues of its first meeting held on September 23. In its second meeting held on September 30, differences had emerged regarding the administrative control of service tax assessees between the Centre and some states, with some states proposing a cross empowerment model for top service tax assessees and exclusive control for Centre for smaller assessees as against exclusive control on all service tax assessees as proposed by the Centre.

Such pending issues of the GST Council are likely to have a spillover effect on the government’s intended deadline of November 22 for recommendations on issues of draft IGST, CGST and SGST laws and rules, GST rate structure and exemption lists, with the process of reaching a consensus on the tax rate expected to take the maximum time.

Both Centre and states are looking at a multiple rate tax structure for the indirect tax regime, most states have already demanded a minimum standard rate of 18 per cent, with some even asking for the rate to be fixed at around 20-22 per cent. The Centre wants to keep the rate at a level which is neither too high nor too low and which does not hurt either the taxpayers or the states.

States and Centre will have to converge on a GST rate from a wide range of rates suggested by various committees. Last year’s report submitted by a committee headed by Chief Economic Adviser Arvind Subramanian had recommended a revenue-neutral rate of 15-15.5 per cent and standard rate of 16.9-18.9 per cent for the proposed GST and a high rate of 40 per cent for luxury goods, while the National Institute of Public Finance and Policy and sub-group had suggested a rate of 27 per cent for both states and the Centre that the Finance Minister Arun Jaitley had termed as too high. Currently, goods attract an effective tax rate of 24-25 per cent (including both the central and state levies), while services attract a levy of 15 per cent. .

The rate setting process might also take more time if states are given the freedom to retain some of the state levies in their respective SGST laws, even though Centre has clarified that all cesses will be subsumed in GST.

Last month, in a major overhaul of the Budget process, the government decided to merge the Railway Budget with the general Budget along with an in-principle nod to advance the presentation of the Union Budget. A new Budget presentation date was, however, not finalised as the government said they will consult states on their calendar of assembly elections. The government intends to enable the passage of the Budget by Parliament by March 31, so that the ministries are able to plan their expenditure from April 1, the beginning of the financial year, than the current norm of waiting till mid-May.

On the other set of economic data of national income required for the advancement of the Budget date, the government had said the Central Statistics Office (CSO) will release a provisional advance estimate of GDP by January 7 so that they can incorporate the date in preparation of Budget. Last month while unveiling the changes in Budget, Economic Affairs Secretary Shaktikanta Das had said that extensive consultations with financial advisers of various ministries had been held and a revised calendar had been drawn up. “The provisional GDP advance estimate is likely to be in line with the final advance estimate, which is usually released by CSO in February,” he had said.

The Cabinet had also decided to remove the classification of Plan and Non-Plan expenditure in Budget 2017-18 along with the decision of no dividend by railways from next financial year.

The last time a change was made regarding the presentation of Union Budget was in 1999, when the timing for the presentation of the general Budget changed to 11 A.M. from the earlier practice of 5 P.M. As per tradition, the Union Budget gets presented on the last working day of February every year, except in years having elections. In an election year, Budget is presented twice, first to secure Vote on Account for a few months and later in full. Source – [12-10-2016]

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About CA Satbir Singh

Chartered Accountant having 12+ years of Experience in Taxation , Finance and GST related matters and can be reached at Email :

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