The Goods and Services Tax Council will review items falling under the highest tax slab of 28 percent after three months with an aim to rationalise rates on goods of mass consumption.
The review will be subject to the revenue implications any change in rates will have on government finances, a government official told BloombergQuint, requesting anonymity. In three months, post GST prices will settle down and reliable item-wise data on revenue will be available to make informed decisions on any change in rates, the official added.
Goods of mass consumption or public interest, intermediate goods which are in the nature of business-to-business supplies, goods predominantly manufactured by micro, medium and small scale industries and export-related items would be considered for revision, according to an official document on rate revision reviewed by BloombergQuint.
Goods that yield high revenue to the government such as luxury goods and sin goods will not be reviewed.
Lowering GST rates from the highest tax bracket of 28 percent to 18 percent will be beneficial for consumers and boost demand, Abhishek Jain, indirect tax partner at EY India, told BloombergQuint.
As long as the government is able to maintain its revenue targets, and realises there are goods on which rates should be lowered, it’s better to revise rates as soon as possible than waiting for three months. Abhishek Jain, Indirect Tax Partner, EY India.
State governments are forwarding industry representations for rate revision sent to them to the fitment committee, without any prior examination of issues, a government official said.
Before the GST Council takes up the matter, state governments have been advised to do a preliminary analysis for rate revisions with data on pre-GST tax incidence, estimated market size of goods or services involved and estimated revenue loss due to the proposed change, the official added.
To revise rates of goods, a set of guidelines will have to be adhered to which include comparing item-wise duties levied in the pre-GST regime, and the rates decided by the fitment committee.
State governments which desire to incentivise goods of local importance can do so by providing them direct subsidy rather than seeking an exemption from GST or reduction in rate, the document quoted above said.
Manufactured goods are unlikely to be fully exempt from GST as it disturbs the input credit chain. Also, having concessional GST rates on products should be avoided for which inputs are taxed at a higher rate as it results to additional costs for domestic dealers, putting them at a disadvantage against imports.
The government would also consider rationalising GST rates with the aim of converging towards a single rate of 18 percent or two rates of 12 percent and 18 percent based on policy objectives instead of pre-GST tax incidence. This would be considered only after a minimum time period of three months, the document says.
Convergence to a single or dual rate structure will not be easy as it will be difficult to increase rates on items which currently attract GST rate of 5 percent to 12 percent, said Jain from EY India. “If revenue collections are good, government can bring down items with GST rate of 28 percent to 18 percent,” he said.