GST slashed on more items, top rate slab pruned

RATIONALISATION Filing made simpler for small merchants

NEWDELHI: The Goods and Services Tax (GST) Council on Saturday cut tax rates on more than 50 items ranging from air conditioners and refrigerators to batteries used in mobile phones, delivering a big boost to the consumer economy.

The federal indirect tax body also gave relief to small businesses and merchants by simplifying procedures and by allowing them to file quarterly rather than monthly returns, which is expected to benefit about 93% of the over 10 million registered GST payers.

The pruning of items in the 28% tax slab, which is expected to cost the exchequer about ₹6,000 crore a year, is an indication of policymakers moving to almost do away with the slab eventually.

The government has already said only items like tobacco need to be in the top GST slab.

The Council exempted sanitary napkins from the 12% GST levied now — meeting a demand made by women’s groups — and reduced tax rates on a host of items of mass consumption. Accordingly, the rate on refrigerators, water heaters, washing machines, televisions up to 68 centimetres, vacuum cleaners, batteries used in electric cars and mobile phones have been lowered from 28% to 18%.

Tax rate on ethanol to be used in autofuel blending has been lowered from 12% to 5%. Besides the pruning of the 28% slab, tax rates have been reduced on a host of handicraft items.

Finance minister Piyush Goyal, who chaired the meeting, said that all the decisions of the Council were taken by consensus and will come into force from July 27.

The GST Council is headed by the Union finance minister and comprises the state finance ministers.

The move to cut tax rates on items of mass consumption comes ahead of the next round of assembly elections in the states of Rajasthan, Madhya Pradesh and Chhattisgarh towards the end of the year and national polls in 2019.

Goyal said the focus of the Council was to simplify the tax regime, rationalise tax rates and give relief to small businesses, not merely revenue collection. The minister said that the revenue impact of rate cuts was marginal and better taxpayer compliance and improved consumption in the economy will more than offset the loss.

“I believe when we assess the impact of the revenue forgone and improved compliance and job creation after one year, every state will benefit,” said Goyal.

“This rate reduction indicates that 28% rate bracket may be on its way out and should be limited to very few sin and luxury products, as was initially proposed by the government, which is a good move from a policy standpoint,” said Pratik Jain, partner & leader of the indirect tax practice at consulting firm PricewaterhouseCoopers.

The next meeting of the Council on 4 August in the capital will exclusively focus on micro, small and medium enterprises (MSME) and on boosting digital payments. The idea is to promote employment and entrepreneurship in the MSME sector, the minister said.

Once the decisions come into force, small businesses and merchants with sales of upto Rs 5 crores will be able to file tax returns on a quarterly basis and pay taxes monthly. The idea is to reduce the rigors of compliance for a large number of tax payers, who account for a small part of the revenue receipts.

This is in addition to the composition scheme, which allows small tax payers with sales of upto Rs 1 crore in most of the states, to pay taxes and file returns on a quarterly basis. In states like Assam, Arunachal Pradesh, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand, the threshold for businesses to take GST registration has been raised to Rs. 20 lakh from Rs. 10 lakh.

“The rate cuts made would increase sales volumes by reduction of prices as the antiprofiteering provisions would necessitate passing on the benefits to consumers,” said M S Mani, partner, Deloitte India.