Acceding to the demands from several industrial segments, small traders and producers and keeping the interests of relatively low-income consumers in mind, the Goods and Services Tax (GST) Council on Sunday decided to lower the tax burdens on them in the upcoming GST regime. Even as these concessions per se would lead to a significant reduction in the overall weighted average tax rate from what it is now and could have an adverse impact on government revenue, finance minister Arun Jaitley said the resultant check on inflation and the likely revenue buoyancy from an expanded tax base would still yield wholesome gains.
At its 16th meeting, the council brought down the tax rates from the level prescribed earlier for as many as 66 items ranging from the most common packaged foods to school bags, computer printers, tractor components and insulin. Additionally, the scope of the composition scheme — which allows small businesses to pay tax as a relatively small percentage of turnover without input tax credit, instead of paying full GST on the value added — has been expanded to include all businesses with annual turnover up to Rs 75 lakh (the limit was earlier set at `50 lakh).
The council also drastically reduced the GST (service tax) rate on job workers in labour-intensive industries namely clothing, leather, jewellery, diamond processing and printing from 18% proposed earlier to 5%, in a move that would incentivise outsourcing of jobs by the relevant industries and give a big relief to lakhs of job workers and artisans.
While entertainment tax (ET) levied by the states on cinema tickets are to be subsumed in GST, the council has decided to keep the corresponding GST rates at 18% for tickets up to Rs 100 and at 28% for others. The ET now varies from 20-110%, with 30% roughly the weighted average. Jaitley said the states might continue to give tax concessions for films made in their local languages but that would be in the form of direct transfers (state GST refunds) rather than exemptions.
The council received as many as 133 representations from stakeholders for tax reliefs/rate cuts, the finance minister said, adding that nearly half of decided in favour of them.
“We have tried to stick to revenue neutrality to the extent possible..but some (revenue) sacrifices have been made to reduce the burden on small traders, which are great job creators,” Jaitley said. He added that equivalence to the existing tax level (combined incidence on central and state-level indirect taxes) was the general principle used for rate fitments, but in some cases, “we have gone beyond this (to reduce the burden on taxpayers),” given the changing consumer preferences and economic realities. The minister said the government was firm on rolling out GST from July 1. On the demand from a section of small businesses for more time for preparation, he said: “they have no option but to get ready”.
In a recent interview to FE, chief economic adviser Arvind Subramanian said while the impact of GST on inflation would depend on how much pass-through happened, headline CPI inflation could still drop. “.. the point is we have not got as much base expansion and as much reduction in complexities as we would have liked. But even with these rates, I expect a 10% expansion in the base due to just invoice-matching,” the CEA said.
MS Mani, senior director, Deloitte Haskins & Sells LLP, said: “The reduction of GST rates proposed on several items by the GST Council indicates that many consumer items may see a price reduction or at least equivalence of prices after GST is introduced. This will avoid any fear of an inflationary spiral due to GST and may actually see prices stabilising and benefiting consumers. It is now hoped that the remaining issues including anti profiteering, e-way bills and issues relating to specific industry sectors on which the expert advisory committees were set up are deliberated and settled in the next meeting”.
Harishanker Subramaniam, national leader – indirect tax, EY India, said, “The Council has shown its continued willingness to reconsider which is heartening. E-way bill discussions are deferred to June 18 meeting, hope they defer this by six months and water down the provisions to avoid challenges. Anti-profiteering rules are now likely to be out post July 1 which could be a challenge from a clarity perspective. With potentially two more Council meetings we will be down to the wire for July 1 implementation”.
Under the composition scheme, subject to the turnover limit of Rs 75 lakh, traders will pay tax at 1% (of turnover), manufacturers at 2% and restaurants at 5%.