GUWAHATI: Making the biggest change in the four-month-old goods and services tax regime, the GST Council on Friday moved 80 per cent of items in the top 28 per cent tax bracket to lower rates. Starting November 15, eating out could cost up to 13 per cent less than before (GST rate cut from 18 per cent to 5 per cent) and a whole host of consumer products like shampoo, deodorant, chocolates, fans, furniture and sanitary fittings should get cheaper by up to 10 per cent or more.
Only 50 products, classified as sin or luxury items like tobacco products, aerated drinks and automobiles, will be in the top GST rate bracket of 28 per cent. When GST was rolled out on July 1, more than 250 items were in the highest tax bracket. That’s a reduction of 80 per cent in the number of items in just 132 days. The total tax on several products still in the highest slab will be higher than 28 per cent since they also attract a cess.
The government also reduced the levy under composition scheme for traders and industry to 1 per cent of turnover, with further easing for those selling exempted goods.
Finance minister Arun Jaitley said the rate adjustment was part of the rationalisation exercise undertaken over the last few months. “Optically, some of them should not have been there (in 28 per cent slab). There are some items in which small players were exempted from excise (duty payment before GST was rolled out),” he told reporters after a seven-hour meeting of the panel that has representation from all states and two union territories. A lower tax rate will translate into a reduction in prices of over 200 products.
The council went beyond the recommendations of the fitment committee comprising officers. The committee had suggested keeping 62 items in the highest bracket. The ministers, however, ignored demands for duty reduction from the construction sector and left cement and paints in the 28 per cent slab.
The latest round of changes will leave a Rs 20,000-crore hole in the pockets of the states and the Centre. It is the Union government that will have to bear the burden of any shortfall in collections since it has committed to make good any revenue loss for five years. Jaitley, however, said the revenue loss was notional.
“Rate reduction for 200-plus goods and services may suggest that there is buoyancy in tax collections,” said Divyesh Lapsiwala, tax partner at consulting firm EY India, suggesting that the revenue loss will be compensated.
More than the revenue considerations, the move is aimed at cheering consumers and placating traders and small businesses who have been complaining of higher compliance burden. With consumers on its side, the Centre is hoping that the protests from traders will wane. The rate cuts should reduce leakages as there is lower incentive to evade taxes. Assam finance minister Himanta Biswa Sarma, who headed the group of ministers for reviewing the tax structure for restaurants said, “Today we have addressed every small issue raised by industry, traders and consumers.”
In May, when rates were finalised by the GST Council, the Centre and the states had agreed to rework rates to ensure that they would be close to the combined incidence of Union excise duty and state value added tax. That principle has been given a go-by, at least in the highest bracket.