The GST Council decided to cut the tax rate on 177 items from 28% to 18%, leaving only 50 items in the highest tax slab and offering major relief to consumers and businesses.
The Goods and Services Tax (GST)) Council on Friday slashed rates across the board, including for a range of daily items of consumption, relaxed penalties and tweaked rules to make it easier for businesses, especially small and medium enterprises, to comply.
The feel-good package from the council, which comes into effect from 15 November, is likely to boost consumer demand, reduce disquiet over compliance costs and also lend fresh momentum to the tax reform initiative.
The Goods and Services Tax (GST) Council on Friday decided to slash rates on more than 175 items, reducing taxes on these from the existing 28 percent in one of the biggest tax reductions since the new system kicked-in from July 1.
The council, which is currently meeting in Guwahati, has decided to cut keep only 50 luxury and `sin’ goods like tobacco in the highest slab, paving the way for price cuts in a raft of commonly used goods from furniture to sanitary ware.
Daily use products such as shampoo, chocolates, beauty products and construction items such as marble and granite will cease to be in the 28 percent slab, Bihar Deputy Chief Minister Sushil Modi said today at the sidelines of the 23rd GST Council meeting in Guwahati.
The tax cuts will have a revenue implication of about Rs 20,000 crore.
The GST Council—the apex body for decision making headed by finance minister Arun Jaitley— today in its 23rd meeting in Guwahati will also discuss the proposal to do away with the distinction between air-conditioned (AC) and non-air conditioned restaurants (not under composition scheme) and tax them at 12 percent.
The reduction in rates will be a significant step towards simplification of the GST to support the trader community ahead of the election in Gujarat that will be held in two phases—December 4 and 11. Small and Medium-Sized Enterprises (MSMEs) have been hit by the implementation of the new indirect tax system and crucial steps will be taken to mitigate their challenges.
GST, billed as the country’s biggest indirect tax overhaul, has consolidated a dozen of state and central duties into one single levy. All goods and services have been fitted into four broad slab structure –5, 12, 18 and 28 percent—along with a cess on luxury and demerit goods such as tobacco, pan masala and aerated drinks.
In the next few hours, the Council is expected to take crucial decisions to make composition scheme more attractive,improve compliance burden and may explore the possibility of including real estate under GST.
Prime Minister Narendra Modi took to Twitter and said, “All our decisions are people-inspired, people-friendly and people-centric. We are working tirelessly for India’s economic integration through GST.”
It is one of the biggest packages concessions announced after the new indirect tax system took effect on 1 July.
The tax reductions will, however, result in a revenue loss of about Rs20,000 crore a year, four people who attended the council meeting said.
A state finance minister explained that buoyancy in GST revenue had given the council the fiscal cushion to undertake the cuts. “The revenue loss of states has come down from 28% to 17% in August. This has emboldened the council to cut rates and take the hit,” the person said.
The biggest rationalization was the decision to cut the tax rate on 178 items from 28% to 18%, leaving only 50 items in the highest tax slab and offering major relief to consumers and businesses.
“There was unanimity that in the 28% slab, there should only be the so called sin and demerit goods (the consumption of which is discouraged through high tax rates). So, today the council took a historic decision to retain only 50 items in the highest slab and to bring down the rate on the rest to 18%,” said Bihar deputy chief minister Sushil Kumar Modi..
The tax rate was reduced on a range of goods, from granite and marble to chewing gum and chocolates, deodorants and detergents.St
Vivek Gambhir, managing director and CEO of Godrej Consumer Products Ltd, said in an email statement, “We remain committed to making our products more affordable and accessible for the mass population, thereby driving consumer demand. In many of our categories, penetrating rates are low and so, the headroom for growth is significant.”
Jammu and Kashmir finance minister Haseeb Ahmed Drabu said that tax rate rationalization was a continuous process and that, eventually, further rate cuts may be possible. West Bengal finance minister Amit Mitra said his government had pitched for retaining only tobacco and big luxury items in the highest tax slab.
In other relief measures, the council also decided to bring more units within the scope of a special tax payment window for small and medium enterprises (SMEs) called the composition scheme and halved the tax rate allowed under it to 1%. The eligibility threshold for the scheme too has been raised to Rs1.5 crore from Rs1 crore now.
The council sought to tackle two major factors that gave GST a bad name—the practice of restaurants not passing on to consumers the benefit of tax rebates that they got in the new system and the rigours of compliance that big and small businesses faced.
Accordingly, the GST rate on restaurants has been slashed to 5% for all restaurants except those in the category of five-star hotels where the tax rate remains 18%. However, benefit of tax rebates is restricted to the 18% category.
The response to this move was, however, mixed. “Effectively the consumer pocket will get a marginal benefit and not as it seems. This move is also retrograde to bringing in players in the organized segment. In fact, restaurants are like the ‘gatekeepers’ which have worked with suppliers to bring them into the formal economy,” said Rahul Singh, vice-president, National Restaurant Association of India. Singh is also founder and CEO, The Beer Cafe.
Source : Press Information
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