GST Council meeting: Consensus builds for 1 July rollout
The GST Council at its Srinagar meeting finalizes tax rates for most items, except for a few state-specific commodities that will be discussed on Friday
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Srinagar: The goods and services tax (GST) Council on Thursday backed the 1 July deadline for rolling out the unified indirect tax that will help create a single national market, and ensured that items of mass consumption bear the least tax burden.
Apart from clearing the air on the government’s ability to meet its deadline for implementing the biggest tax reform since independence, this also ensures greater political acceptability for the new tax regime, given that policymakers have gone the extra mile to protect consumers.
“There is no increase in overall tax in any of the items, while there is a reduction of tax on many of the items,” finance minister Arun Jaitley told a press conference. “On several commodities, we consciously brought down the tax rate.”
The minister explained that while there will be an overall reduction in tax incidence on commodities and services, improved tax collection efficiency will ensure tax buoyancy.
Kerala finance minister Thomas Isaac described the benefits that will accrue to the consumers from the GST rollout as “windfall gains”.
It needs to be ensured that businesses do pass on the benefits of tax reduction to consumers, Isaac said in an interview. “A demand was made that the anti-profiteering clause in the GST laws be made operational,” he said.
Five state finance ministers Mint spoke to confirmed the 1 July deadline, signifying political consensus across political parties. They also said the decision on the fitment of goods and services against specific tax rates was unanimous.
On Friday, the Council is expected to discuss the rates on a few items of relevance to specific states. These include gold jewellery, beedis, packaged food, clothing and footwear.
Items such as cereals, which were taxed earlier at 5%, will now be zero-rated. Coffee, sugar, tea and edible oil will attract a lower GST rate of 5%. Capital goods, a key asset for the manufacturing sector, will be taxed at 28%.
Several daily-use items such as hair oil, toothpaste and soap have been kept in the 18%-slab instead of at 28%. The reduction in the tax incidence is likely to ease inflation.
“The biggest takeaway from the decision is that food items will become cheaper,” said revenue secretary Hasmukh Adhia.
Adhia explained that the Council decided on the tax rates for 1,211 items of goods and services, of which 7% will be exempted, 14% will fall in the 5% slab, 17% in the 12% slab, 43% in the 18% slab and 19% in the 28% slab. The present tax incidence in excess of 28% on luxury items will be treated as cess after GST rollout, which will go to the corpus for compensating states for any revenue loss on account of GST’s introduction.
Luxury cars will be taxed at 28% GST plus a cess of 15%, while small petrol cars will be taxed at 28% GST plus a 1% cess and small diesel cars at 28% plus 3% cess.
The cost of energy generation is likely to come down as the tax incidence on coal will come down to 5% from about 11% now.
Bipin Sapra, tax partner, EY India, said the broad rate structure of GST has become clear with very few items being exempted, most of them in the 18% category and a large number in the 28% category. “Accordingly, while food stuff and unprocessed basic items like tea, coffee and edible oil may become cheaper, a large number of items which will be under 28% bracket would become costlier,” said Sapra.
Kerala’s Isaac also expressed the concern that eliminating the effect of ‘tax on taxes’ will lead to lower revenue receipts while achieving the targeted efficiency in tax collections may not be easy. “The assumption about revenue buoyancy resulting from tax collection efficiency is a bold one,” he said.
The state of Jammu and Kashmir, which has a special constitutional status, will pass separate laws regarding central, state and inter-state GST so that the Himalayan state also rolls out the tax reform from 1 July, said a senior state functionary.
“We cannot delay the implementation of GST as it could affect movement of goods into and out of the state,” the official said on condition of anonymity.