GST: Small cars are not going to cost more after July 1: Arun Jaitley

In a chat with ET Now, Finance Minister Arun Jaitley says he is banking on the hope that as in many cases the rates have been made more reasonable, the tax collection itself will go up. Editred Excerpts:

ET Now: The fact that now you have made the GST rates public and you do believe that the effect going forward should be non-inflationary. But many also say that in the short term, we may see a dip in sales.
Arun Jaitley: I do not visualise that situation at all. For example, if you take the entire basket of goods, there is not a single good out of the 1,211 where we have increased taxes above the present level. Either that level has been maintained or the cascading effect has been removed or the tax on goods has been substantially removed. So whatever you were giving 31% with cascading effect, is now to 8%. Many 28% items have been transferred to 18% and this is all subject to any input credit also, which you earlier were not getting.

Similarly, take the case of services. Now when you buy an apartment in a building, there will be GST in a works contract for the buyer of 12% but that is then subject to the input credit. So whatever credits you paid by way of purchase of steel, cement, sanitaryware and these are high tax items, you get the input credit. So the actual incidence of tax will then go down.

ET Now: From now till July 1st, there is not going to be a dip in sales. Is that what you are pointing at?
Arun Jaitley: Consumers can plan their preferences. For instance today I saw a misleading report on small cars to cost more. Now I think the media also has a responsibility. How will the small cars cost more? Today the small cars are taxed at 31% and 29%. What does the GST say? It will be 28 plus 3%, 28 plus 1% - exactly the same rate has been maintained. So whether you buy it before 1st of July or you it buy it after 1st of July, the incidence of tax is the same.

ET Now: Similarly, for a lot of FMCG products also, do you believe the effort by the government is to pump prime the economy?
Arun Jaitley: Well obviously we are doing it. To pump prime the economy, the public spending going up. If you actually see the entire basket of goods and services, the incidence of tax, effectively the weighted average, will go down. Therefore the weighted average will never be inflationary, it will be in the other direction itself. Will my taxes go down? I am banking on the hope, a more efficient system, more tax buoyancy, less evasion and therefore despite the fact that in many cases the rates have been made more reasonable, the tax collection itself will go up.

ET Now: There are a lot of contentious goods like gold where the states are still divided. But what is the centre’s view because gold is a luxury item…
Arun Jaitley: My job in the GST Council is to evolve a consensus. I am not going to give my views. I have already expressed my views about gold in parliament and it is well known. I need not repeat it. But for these six areas which are left, I hope on the 3rd of June which is at least three to four weeks before the GST is implemented, we will be able to announce the rates.

ET Now: Someone said how at a later stage, GST will be made more perfect by adding real estate into it. Will you ask other states also to look at it?
Arun Jaitley: Delhi government has made a proposal. Their finance minister Mr Sisodia made a proposal that real estate should be brought in and I think it is a very good proposal because real estate is where a lot of black money is transacted and therefore bringing it within the GST chain will always be of help.

I personally support the proposal. The GST Council decided that let it be implemented on the 1st of July, in the very first year itself we will see the implementation and then we will take a call on real estate. Part of the real estate as a part of the works contract is already in so we have to now see whether the rest of the real estate can come in.

ET Now: The stage is now set for July 1st rollout. How ready are the states?
Arun Jaitley: Minister after minister met me and said do not compromise on the 1st of July deadline. If you blink, then we do not know what will happen. I am quite confident we will start on the 1st of July.

ET Now: And what about the industry because ultimately it really percolates to them.
Arun Jaitley: I do not think they have an option now. Everybody has to be ready for 1st of July.