GST Council begins work to rejig tax rates
Opposition states seek revenue protection
New Delhi: The work to overhaul the tangled goods and services tax (GST) began on Wednesday as the government looks to cut the tax rate on common-use items, ranging from butter to certain footwear and apparel, in an attempt to boost domestic spending and cushion the economic blow of US tariffs.
The marathon 56th meeting of the GST Council, the apex decision-making body on indirect taxes, headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states, discussed reducing GST on life and health insurance premiums and easing compliance rules for business on the first day of the two-day meeting.
According to sources, the panel is likely to have discussed a three-way registration process for non-risky business and issuance of refunds, in case of exports, in seven days, among a host of measures to ease compliance burden.
It also reviewed the final blueprint of simplifying the GST from the current four slabs – 5, 12, 18 and 28 per cent, to a two-rate structure – 5 and 18 per cent. A special 40 per cent slab is also proposed for a select few items, such as high-end cars, tobacco and cigarettes.
The decisions taken at the meeting are likely to be made public on Thursday.
While daily use unpacked food items will continue to attract nil tax rate, common use food and beverages, ranging from butter and ghee to dry nuts, condensed milk, sausages and meat, jam and fruit jellies, tender coconut water, namkeen, drinking water packed in 20-litre bottles, fruit pulp or fruit juice, beverages containing milk, ice cream, pastry and biscuits, corn flakes and cereals, are likely to see a cut in tax rate to 5 per cent from current 18 per cent.
The GST Council is likely to have approved lowering the GST rate on footwear and apparel priced up to Rs 2,500 to 5 per cent, according to sources.
Currently, footwear and apparel priced up to Rs 1,000 are taxed at 5 per cent.
Beyond the threshold, 12 per cent Goods and Services Tax (GST) is levied.
The 56th GST Council decided to raise the threshold for footwear and apparel in the 5 per cent slab to Rs 2,500 apiece from Rs 1,000.
Consumer goods, such as tooth powder, feeding bottles, tableware, kitchenware, umbrellas, utensils, bicycles, bamboo furniture and combs, may see tax rate cut from 12 per cent to 5 per cent.
Similarly, the tax rate on shampoo, talcum powder, toothpaste, toothbrushes, face powder, soap and hair oil is likely to come down from 18 per cent to 5 per cent.
Cement is likely to cost less, with the tax rate coming down from 28 per cent to 18 per cent.
Reducing GST on Petrol, LPG and CNG vehicles of less than 1,200 cc and not more than 4,000 mm length and diesel vehicles of up to 1,500 cc and 4,000 mm length to an 18 per cent rate from 28 per cent is being discussed by the council.
Discussions are also ongoing on cutting taxes on Motorcycles of up to 350 cc, consumer electronics like ACs, dishwashers, and TVs to 18 per cent against 28 per cent currently.
Items that may cost more include readymade garments and footwear priced above Rs 2,500, as the tax incidence rises from 12 per cent to 18 per cent.
Discussions are underway on taxation of all petrol and diesel automobiles above 1,200 cc and 1,500 cc, and longer than 4,000 mm, as well as motorcycles above 350 cc, yachts and aircraft for personal use, station wagons, racing cars and smoking pipes. They may be put in the 40 per cent rate.
The move to simplify the tax regime – first announced by Prime Minister Narendra Modi in his Independence Day speech – comes as India’s exports to the US face a 50 per cent tariff – the highest in the world.
The Indian economy is heavily reliant on consumption, with the private sector accounting for 61.4 per cent of the nominal GDP last fiscal.
GST reforms are likely to boost the economy by up to 0.5 percentage points by the second year of their implementation, effectively neutralising the full impact of the US tariff, economists said.
While opposition-ruled states have demanded that all states be compensated for the revenue loss they incur post the implementation of the GST rejig, the finance minister of TDP-ruled Andhra Pradesh, Payyavula Keshav, said his state is supporting the Centre’s GST rate proposals.
On Wednesday morning, before the Council meeting, eight opposition-ruled states — Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal — had their own meeting to formalise their strategy and reaffirmed their demand for revenue protection to give approval to the rate rejig.
Jharkhand Finance Minister Radha Krishna Kishore told reporters here that his state will suffer a Rs 2,000 crore revenue loss if the Centre’s GST rate reform proposal is implemented.
“If the Centre agrees to compensate us for whatever loss we would incur, then we have no issues in approving the agenda before the Council. I don’t think the issue will come up for voting, as in a federal structure, it is the responsibility of the Centre to compensate states for revenue loss,” Kishore said.
