Two-rate GST plan for services

The GST council's fitment committee has tentatively decided to have two tax slabs - 12 per cent and 16 per cent - for services, while continuing with five slabs for goods.

By Jayanta Roy Chowdhury
  • Published 15.05.17
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New Delhi, May 14: The GST council's fitment committee has tentatively decided to have two tax slabs - 12 per cent and 16 per cent - for services, while continuing with five slabs for goods.

Members of the fitment committee said they decided on the two rates for services after there were several representations on how an 18 per cent rate, which was being considered at one point, would lead to business loss.

The fitment committee is responsible for fixing the rates for various products under GST.

"Services which are taxed at 15 per cent will be mostly taxed at 16 per cent. However, some services which are price-sensitive or which are commonly used by the masses will be taxed at 12 per cent," officials said.

The all-India goods & services tax (GST) seeks to snuff out a host of central and state levies - including excise duties, VAT, service tax and octroi - and replace them with a single tax.

Restaurants will continue to get an abatement of 60 per cent on service taxes. This has been a contentious issue with hoteliers demanding relief as higher levels of tax will hurt their business.

Goods will be taxed at 5 slabs - 5 per cent, 12 per cent, 18 per cent, 28 per cent and 28 per cent plus cess.

A cess or surcharge has been imposed on certain goods for five years to compensate states for their loss in revenue because of abolition of VAT and octroi

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

A special rate for gems and jewellery will be fixed at 2- 4 per cent.

Officials said the committee wanted to ensure that goods and services are fitted into slabs that are closer to their current rates.

"The whole idea is that consumers do not pay more taxes. In some cases, the incidence of tax will be slightly lower and in a few, very few, taxes will go up marginally," they said.

Around 73 items have till now been identified for total exemption from taxes. These include agricultural implements, aides and instruments used by the handicapped, charcoal, handloom and handicraft, condoms and contraceptives and foodgrains. Fish net, fish seed, fresh and pastuerised milk, fresh vegetables, kirpan, kumkum, bindi, alta, religious pictures, salt, sugar and vaccines of all kinds are also on this list.

"The number of items exempt have been reduced from 99. The aim is to bring in more and more goods and services but exemptions for goods by the cottage industry or for truly mass goods such as salt will continue," said officials.

The median rate of 12 per cent will include most products such as white goods, plastic products, diapers, bakery products, cement, shoes, instant coffee, most machinery and office equipment and paints.

Official said the lists would be placed before the GST council at its meeting in Srinagar on May 18. The four laws to facilitate the introduction of GST were passed by Parliament in March. The laws are being gradually passed by each state Assembly, while work is underway on the nitty-gritties such as the exact taxation structure.

The government hopes to impose the new taxes from July. But some analysts said the date was too optimistic as many companies and states were still not ready for the new system.

Excise impact

Excise collections may take a hit as dealers are refraining from purchasing goods from manufacturers as they are not sure about the tax credits and rates under GST, according to PTI.

In view of this uncertainty and the transitory mechanism for getting credit on tax paid before the GST kickoff, dealers are choosing to wait and watch rather than buy and hold on to inventories.

This state of flux will have a direct bearing on excise collections during April-June, said experts.

PwC national leader (indirect tax) Pratik Jain said given the apprehension about the loss of credit for transition stocks, there is an attempt to reduce the inventory level, which is impacting the sales of most consumer products in the current quarter.