Tea, coffee and milk powder will all attract a lower tax rate in the goods and services tax (GST) regime together with other essential items, the government said on Thursday. Currently, several commodities are subject to the cascading effect resulting in a higher tax incidence. For example, sugar currently attracts a central excise duty of Rs71 per quintal in addition to a sugar cess of Rs124 per quintal.
This translates into an ad valorem rate of more than 6%. This is further compounded by central sales tax (CST), octroi and entry tax, which take the total tax incidence to more than 8%. The GST rate of 5% on sugar compares favourably with the prevailing rates by nearly 3 percentage points.
Prices of commodities could trend down given the law requires the tax cuts and the gains from input tax credit to be passed on to the consumers.
Those failing to transmit the benefit to the consumers could be penalised under the anti-profiteering authority envisaged under the new indirect taxation structure.
Similarly, in the case of tea and coffee with the exception of instant coffee, the differential between the GST and extant rate works out to be nearly 2 percentage points. “Tea and coffee, other than instant coffee, attract nil central excise duty and VAT rate of 5%. Considering embedded taxes in production of tea and coffee and the incidence on account of CST, octroi and entry tax etc, the present total tax incidence works out to more than 7%. As against this, the proposed GST rate for tea and coffee is only 5%,” the government said in a statement.
Additionally, milk powder, an essential ingredient in tea and coffee-based beverages, will be levied with 5% tax under GST compared with the prevailing incidence of 7%. Currently, while milk power attracts zero central excise duty, it attracts 5% value added tax (VAT). Besides, it is levied with embedded taxes in production of milk powder and the incidence on account of CST, octroi, and entry tax, amounting to a final tax incidence more than 7%.