A cut in personal I-T will put more money in the hands of people, lift overall sentiment, and perk up demand. However, while this story may play out with some time lag, tax loss would be immediate, adding to the Rs 1.45 lakh crore giveaway on acc...

GST reforms if revenues rise, I-T cut unlikely. Finance minister Nirmala Sitharaman surprised everyone with her big-ticket corporate tax rate cut on September 20. Will she do the same for personal income-tax (I-T) in the upcoming budget, shifting to a flat rate tax with no exemption? Will she rewrite the Goods and Services Tax (GST) script to unleash GST 2.0, migrating to a two-rate structure? Bibek Debroy, chairman, Prime Minister’s Economic Advisory Council, suggested offering a lower rate with zero exemptions for incomes up to a certain level. The Direct Taxes Task Force, set up by the finance ministry, in its report also suggested a rejig in personal I-T.

What stands in the way of these logical changes is possibly the slowing economy and the attendant muted rise in tax revenues. A cut in personal I-T will put more money in the hands of people, lift overall sentiment, and perk up demand. However, while this story may play out with some time lag, tax loss would be immediate, adding to the Rs 1.45 lakh crore giveaway on account of corporate tax.

The revenue gap would, if taxes are cut, expand fiscal deficit, derailing the macro stability that has kept inflation low and pushed interest rates down. In short, potential benefit of an I-T cut may be erased by the consequences of higher fiscal deficit.

Likewise, there is a case for a dual rate GST as opposed to a five-rate one? But revenue consideration trumps this reform, and some states have also opposed any change for the same reason. However, if the economy does pick up, and revenues rise, one can bet on GST reform being first off the blocks, may be even in 2020.