GST rates of 211 items cut, restaurants to charge 5%

TAX RELIEF 178 items in the 28% slab reduced to 18% in biggest GST correction

GUWAHATI: Scores of mass consumption items such as detergent, shampoo and chocolates will become cheaper, as the panel on Goods and Services Tax (GST) decided on Friday that only so-called sin goods should be taxed the most under the new multi-rate system.

The GST Council recommended that the government prune by nearly three-quarters the number of items under the highest 28% slab, as well as move some items under other tax categories to lower brackets.

The meeting agreed to reduce tax on restaurant bills, but given that these eateries will not get input tax credit — a facility to set off tax paid on inputs with final tax — eating out might not become substantially cheaper.

The council also decided to bring more units within the scope of a special tax payment window for small and medium enterprises (SMEs) called the composition scheme, and halved the tax rate allowed under it to 1%. The eligibility threshold for the scheme too has been raised to ₹1.5 crore from ₹1 crore now.

The latest feel-good tweaks to what is India’s biggest tax overhaul should help ease the pressure the government faces over economic disruptions from the GST rollout and last year’s scrapping of high-value banknotes.

The decisions could also help

reduce disquiet over compliance cost for SMEs, which are crucial to Prime Minister Narendra Modi’s plans to create a million jobs a month and many of whose promoters are traditional voters of his BJP. The party is facing a resurgent opposition in elections in its bastion of Gujarat.

India has about 56 million small and medium-sized firms

that account for some 110 million jobs in the country, official data show. Prime Minister Modi took to Twitter and said, “All our decisions are people-inspired, peoplefriendly and people-centric. We are working tirelessly for India’s economic integration through GST.” Making things cheaper could, however, set government revenues back by R20,000 crore, four people who attended the meeting said. “Consumers will be benefited by lower prices as most of the taxable items are in the 5%, 12% or 18% slabs,” finance minister Arun Jaitley told a press conference after the meeting.

The GST subsumed a string of state levies and taxes but has faced a bumpy ride since its July 1 launch, especially on account of complex monthly tax-filing processes that is said to have raised the cost of doing business for shopkeepers and small businesses.

Opposition Congress appeared unimpressed with Friday’s decisions. “The Prime Minister and his government first shoot, then they aim and then think, be it on the issues of demonetisation or GST,” party spokesperson Abhishek Manu Singhvi said, questioning the timing of the decision ahead of the Gujarat assembly elections.

But most industry experts welcomed the latest changes but hoped it would boost consumer demand but not impact public finances. “While the reduction of rates would substantially reduce the prices of a number of commodities, the government may need to balance the revenue considerations too,” Bipin Sapra, Tax Partner, EY India, said.

Krishan Arora, partner, Grant Thornton India LLP, said the decision to prune the 28% slab would be a welcomed by industries in the mass consumption space.