The Telegraph
Friday , May 19 , 2017

GST to make food cheaper

May 18: The prices of foodgrain, cereals and milk will go down from July 1 as they have been exempt from the goods and services tax (GST).

The GST Council, which sets the rate, arrived at a broad consensus today on the fitment of over 1,200 manufactured goods under a five-slab tax structure. The five tax slabs are 5 per cent, 12 per cent, 18 per cent, 28 per cent and 28 per cent plus cess with the peak rate capped at 40 per cent.

"We have finalised the tax rates for all but six of the 1,211 manufactured goods on the first day of our two-day meeting," finance minister Arun Jaitley told reporters in Srinagar after the day's deliberations. Srinagar was chosen as the venue more for the political than economic reasons at a time the Valley is witnessing an azadi groundswell.

Common use products like hair oil, soaps and toothpaste are also expected to come down as they are being brought under the 18 per cent tax slab under GST. At present, the combination of central and state levies on these products ranges between 22 and 24 per cent.

The more contentious issue of services will be taken up tomorrow. The GST Council is headed by Jaitley and includes representatives from all states. A consensus at this meeting will remove the last hurdle to the implementation of GST, an idea that was first floated by Dr Amaresh Bagchi in a tax reform report submitted in 1994.

GST aims to create a single national market by blending a cascade of central and state taxes.

Revenue secretary Hasmukh Adhia said sugar, edible oil, normal tea and coffee would attract a GST rate of 5 per cent, which is almost the same as the current rate.

There was some confusion over the GST rate on passenger cars and sports utility vehicles. All cars will come attract 28 per cent tax - the highest tax slab - and the only differentiation between small and big cars will depend on a variable cess.

One report said small cars would attract 1 per cent cess, mid-sized sedans 3 per cent and luxury cars 15 per cent but this could not be confirmed.

Jammu and Kashmir finance minister Haseeb Drabu told a television channel that the discussions on the differential cess on vehicles remained inconclusive.

Aerated drinks will also face a 28 per cent tax. Air-conditioners and refrigerators are also being placed in the top bracket.

Coal will be taxed at 5 per cent, far lower than its effective tax rate of over 11 per cent, officials said.

The GST Council failed to reach a consensus on the tax rate on items such as gold and silver, textiles, beedis and cigarettes, officials added. States want gold to be taxed at 4 per cent, which is outside the approved tax slabs of 5, 12, 18 and 28.

More than 70 items will be exempt from the GST and these include agricultural implements, aids and instruments used by handicapped, charcoal, handlooms and handicrafts, condoms and contraceptives, foodgrain, fish net, fish seed, fresh and pastuerised milk, fresh vegetables, kirpan, bindi, alta and sindoor, gamocha, religious pictures, salt, sugar, vaccines of all kinds, poha, murmura and unprocessed green tea leaves.

Officials said that 14 per cent of all manufactured goods will be placed in the 5 per cent slab, 17 per cent in the 12 per cent slab, 19 per cent of the items will attract a tax rate of 28 per cent, while 7 per cent will be on the exempt list.

Harishanker Subramaniam, national leader (indirect tax) at EY India, said: "What we need to watch out for is the fact that 19 per cent of goods will fall in the 28 per cent category, which is a significant number. Services will be debated tomorrow, which could see a three-rate structure. Some key rules like transition are also likely to be finalised and this will have a bearing on how stockists behave in the coming weeks."

"The overall impact is non-inflationary. The tax burden hasn't increased in any commodity," Jaitley said. "In many commodities, there is a reduction, particularly as the tax on tax has gone. On some (goods), we have deliberately brought the tax rate down," he added.

A cess, or surcharge, will be imposed on certain goods for a period of five years in order to pay compensation to states for their notional loss in revenue due to the abolition of VAT, octroi and entry tax.

The surcharge will be imposed on taxes on items like luxury cars, soft drinks and tobacco products and will be capped at 15 per cent.

Said V.S Datey, senior consultant at Taxmann: "The rates announced are along expected lines. The government had already stated that they will not disturb the existing tax structure.... However, it seems a lot of work has yet to be done. Exemptions and issues related to reverse charge mechanism have not been finalised, thus the chances of introducing GST by July 1 looks doubtful."

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