Experts have mostly welcomed the government's balancing act to keep most rates closer to the current tax incidence and lower for affordable items, but has expressed surprised on a single rate for all biscuits across price points.
Taking a major step forward on the impending implementation of GST, the council has fixed the tax rate at the lowest tax slab of 5% under the new regime on footwear worth up to Rs 500; apparels worth up to Rs 1,000; and on all natural yarn and fabric, in order to provide relief to the section of the population buying affordable wearables. However, the rate of tax on more expensive footwear and readymade clothes has been fixed at 18% and 12%, respectively. (Read full story)
The different rates in this case seem to reflect the administration’s thinking on shielding the poor from a rise in cost of an essential item, despite some prevailing criticism on differential tax rate on the items of the same category.
To the surprise of many, the tax rate on all biscuits has been decided to be kept at 18%, irrespective of the price, against the expectation of a lower tax rate on the lower priced items. “The tax on lower priced biscuits at present is at 20.6% on weighted average basis…,” Arun Jaitley said, adding that the nearest tax rate has been chosen.
Here’s what experts have to say on the rate of tax fixed on various items:
Apparels, Textiles, Footwear — Favourable to industry
- Suresh Nair, Tax Partner, EY: The suspense around GST rates for branded apparel vs unbranded has been put to rest in today’s GST Council. The entire supply chain from yarn to the apparel stage is now sought to be taxed, with seamless credit flow. The unorganized sector within the industry would need to gear up to meet the challenges of the new tax regime.
- Sachin Menon, Partner and Head, Indirect Tax at KPMG in India: A welcome relief granted by the GST Council to the textile industry as most of the textile and yarn is taxable at 5%, except readymade garments which has been kept in the 12% bracket. Announcements made by the GST council today indicates that government has taken a favourable view of the demands of the key industries like textiles, food/agriculture and precious metals and ensured that the rates are kept at a reasonable level, which is not materially different from the current tax incidence.
- Harpreet Singh, Partner, Indirect Tax, KPMG in India: Textiles today attract multiple excise rates which depend upon the type of fibre (cotton vs man-made fibre), price (garments above or below Rs 1,000), product (fabrics vs garments) and branding (i.e. branded vs unbranded garments). As regards to VAT, most of the items are exempt from tax or attract tax @ 5%. The GST Council has decided that under GST, jute & silk would attract nil rate, all categories of yarn would be taxable at 5% (excluding manmade yarn which would be liable to 18%) and fabrics of all categories would be liable to a tax @ 5%. Also, with regards to readymade garments it was decided that the GST rate would be 5%, if the price is less than Rs.1,000 and 12% where the price is more than Rs.1,000. With this structure, the Government has done a decent job by reducing the multiple categories of rates and keeping the rates close to the current effective tax. Also, input tax credit has been allowed (but no refund in case of excess credit), which is a good news. The most desirable situation would have been to have one flat rate for all categories. However let’s not allow ‘Best’ to be the enemy of ‘Good’ and try and proceed with whatever ‘good’ the Government has done so far.
- Footwear industry currently attracts excise duty of 12.5% and VAT is levied @ 5%. Further, footwear with an MRP of less than 500 is exempt from Excise. Now, with GST rate of 18% on all footwear above Rs. 500 and @5% on footwear less than Rs. 500 , the industry sentiment would not be upbeat. India is a big exporter of footwear. However in recent months, there has been a decline in the exports. In accordance, the footwear industry was looking at lower GST rates to boost the local demand, which in a way could have compensated for the decline in exports. Today’s announcement of 18% rate on most footwear, is not something which the industry would have wished for.
- Harpreet Singh, Partner, Indirect Tax, KPMG in India: After detailed discussions on taxation of biscuits, the GST Council finally decided on a GST rate of 18% on all categories of biscuits. This was little surprising, as like Footwear and Textiles, this industry was also expecting two rates i.e. a lower rate for cheaper biscuits used by the ‘aam aadmi’ and a residual higher rate for costly cookies meant for the elite class. This GST rate definitely appears to be on the higher side. Also, with cutthroat competition in this industry and thin margins, it is likely that the impact of rate increase is passed on to the consumer. Therefore, eat all your cookies before 1st July or change your taste buds and shift to other confectioneries.
- Pratik Jain, Partner and Leader Indirect Tax, PwC: Biscuit industry would have expected some differentiation between lower price point products and higher, in line with apparels and footwear but it finds itself at 18% category in entirely.
Solar panels — clarity welcome
- Pratik Jain, Partner and Leader Indirect Tax, PwC: A clarification that solar panel and modules would be taxed at 5% is also a welcome move and shows that Government is listening to the industry voices.
- Pratik Jain, Partner and Leader Indirect Tax, PwC: On rates, largely the principle of equivalence vis a vis current rates has been followed. However, there seems to be a disconnect between the calculations of current effective taxes done by the industry and the government, particularly on sectors like biscuits and footwear. It is important that the government relooks at this in the next meeting scheduled on June 11th.
(Originally published on Sunday, June 4, 2017, on www.financialexpress.com)