GST rate structure finalized
Overcoming many hiccups India’s GST Council has moved a step closer to introduce the Goods and Services Tax from the next financial year beginning April 1st 2017. The council has agreed on the GST rate structure. The tax rates would range from 5 to 28 percent, with two intervening standard rates of 12 percent and 18 percent. Deepak Talwar, Principal of DTA Consulting felt that though the rates seemed too many “to begin with this is a good step forward”.
The fine tuning of fitment of items under each head will be worked out by a Committee of Secretaries and officials. They will align the products in synchronization with the current tax rates. The GST Council headed by the Union Finance Minister Arun Jaitley and attended by the finance ministers of the States has finalized the rate structure and given the broad guidelines for the officials to decide on the fitment of items.
The broad rate structure is as under:
Around 50% of the items that form part of the consumer price index basket (such as daily food consumption items) will not be taxed at all under GST.
5% tax rate for mass consumption goods like butter, ghee as also common man’s daily use items– While the lists are yet to be rolled out by the GST Council, all essential commodities and services, including education and health care should feature in the list of special concessional rate of 5% (if not zero rated).
12% standard rate – but there has not been any hint even on which goods will fall in this category. It is expected that many mass consumption items will fall in this slab.
18% standard rate – this will be applied on services. The current rate of service tax is 15% inclusive of two cess charged. This will go up. But certain items like soaps, oil, shaving sticks etc. will be cheaper due to lower tax.
28% is the highest slab and will be applicable on cars, white goods. There will be cess on luxury cars, tobacco products, pan masala, aerated drinks and also clean energy cess on coal. The click here items where cess will not be charged – certain cars, white goods will be cheaper. The cess will be used to compensate loss of revenue of certain producing states due to introduction of GST.
There will be separate rate for gold and precious metals – the rate will be decided later.
The Impact of GST
Inflation – is expected to be lower since most mass consumption items will be charged at lower rates or nil rates. “There will be inflationary effect of higher service tax but the same is expected to be more than neutralized by less charges on mass consumption items,” said Deepak Talwar. According to India’s Chief Economic Adviser Arvind Subramanian on average this should probably serve to lower inflation.
Revenue – most states are expected to earn higher revenue due to larger pool of taxes. States without much manufacturing base, like Bihar, West Bengal, will gain. But manufacturing states like Gujarat, Maharashtra, Tamil Nadu will lose. The estimated loss will be compensated by cess which is expected to yield Rs 50,000 crore ( Rs 500 billion). Such compensation will apply for five years and after four years GST Council will decide if the same will continue or not.
The Committee of officials will have to work out the details of fitment of products. The same will then be approved by the national Parliament and State Legislatures.”We may see another round of tough negotiation at this stage”, said Talwar.
There will be hectic representations from various industry bodies particularly for fitment of products. The 12% and 18% bracket has kept the options of such pulls and pressures open. How a consensus is reached by the officials will be watched keenly.
The Council need to clear the proposed legislations for the final enactment of GST. Once the same is approved by India’s Parliament and State legislatures GST will be implemented. The Government is hopeful that the new one tax structure for the entire country will come into effect from April 1st 2017.