Skip to main content

At 18%, GST Rate to be Less Taxing for Most Goods


About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council will take a final call at its next meeting on May 18-19. GST, India's biggest tax reform in decades, is expected to be rolled out on July 1.

The government is keen to avoid price shocks following the switchover to GST and the fitment exercise will be guided by this principle. The GST legislation contains an anti-profiteering clause to ensure that industry passes on tax benefits to consumers by lowering prices where applicable.

GST seeks to replace central taxes including central excise, service tax and cesses along with state taxes including value-added tax, purchase tax and entertainment tax by a single levy, thus creating a unified national market. Moreover, industry will be eligible for seamless input tax credit that should also drive down prices as tax embedding through imposition of tax on tax inflates the final
price of a product.

By slashing costs and boosting efficiency, GST will result in GDP growth getting a 1-2 percentage point lift, according to experts.

Final fitment should be based on effective tax rate to lower tax burden on consumers, they said.

“In most consumer products, excise duty is applied on MRP (maximum retail price) less abatement of 30-35%,“ said Pratik Jain, leader, indirect tax, PwC. “So, if MRP is 100, effective excise duty works out to 8-9%.When you add a standard VAT of around 13%, the effective rate works out to 21-22%. One would hope that most of these products, which include most FMCG (fast-moving consumer goods) and consumer durables, would be subjected to 18% GST and not 28%. If not, it would increase the tax burden on consumers and intended benefits of GST in terms of lower prices and increased manufacturing would be difficult to realise."

11TH APRIL,2017,THE ECONOMIC TIMES,NEW-DELHI

Comments

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …