GST Council weighs revision of tax on mobiles, footwear
NEWDELHI: The Goods and Services Tax (GST) Council may consider revising tax on several items that suffer from an “inverted duty structure” such as fertilisers, mobiles, footwear, renewable energy devices, tractors and man-made yarns and fabrics in order to correct the anomalies, multiple people close to development said.
The correction may either raise GST on finished goods or lower levies on inputs, these people said, requesting anonymity. The matter will be placed before the Council during its meeting scheduled on March 14, they added.
Inverted duty refers to the case when the levy is higher on input materials compared to the finished good, which makes it difficult for manufacturers to avail input tax credit (ITC). Presently, certain manufactured goods attract GST rates of 5% or 12% while levies on their inputs are at higher levels of 18% or 28%.
In the GST system, inputs and raw material should ideally have lower rates than finished goods. Otherwise, a taxpayer is not able to fully utilise the ITC and the accumulated unutilised ITC becomes a cost unless refunded by the government. Since ITC is adjusted against the tax liability on the output, an ideal rate structure would be one in which the output tax liability is higher that the input tax, persons mentioned above said.
“A number of other smaller items like utensils also attract inverted duty structure. In few cases, like HDPE (High Density Poly Ethylene), PP (polypropylene) bags and railway wagons and parts rate inversion has been corrected on the recommendation of the (GST) Council. Estimated refund on account of inverted rate structure is about ₹20,000 crore per year,” one of the persons with direct knowledge of the matter said.
The person said it is, therefore, highly desirable that inverted rate structure is corrected.
“This would require tweaking of rates in such a way that input suffer lower incidence as compared to finished goods. This issue has been discussed in the Committee of officers on Augmentation of Revenue. The Committee has among other suggestions recommended that inverted rate structure be corrected in such a way that need for refund is minimised or does not arise,” he said.
The committee is of the view that inverted rate structure could be corrected in phases and it can begin with such corrections on mobiles, footwears, textiles, renewable energy equipment and fertilizers.
This would not only be a great help in furthering ease of doing business but would also bring in transparency and thereby freedom of business activity with convenient cash flow, he said.