28% GST slab to see fewer goods
After feeling the heat of GST woes in the pollbound state of Gujarat, revenue secretary Hasmukh Adhia said on Monday that the number of goods in the highest slab of 28 per cent would be brought down to bring relief to consumers and the industry.
He said that instead of doing a piecemeal reduction here and there, “we do need to look at the entire rate of 28 per cent.”
In view of Gujarat elections, government is nervous over anger in the trading community on GST and is keen to take steps to mollify them.
When asked if the GST Council is considering pruning of the number of items in 28 per cent tax bracket, Mr Adhia said: “It is required; the fitment of rates which has happened is mainly based on excise and VAT.”
The secretary pointed out that while fitting the goods and services in various tax bracket, the GST Council has taken into consideration only the excise duty and VAT rate applicable on those items prior to GST.
He said that there are manufacturing units, which procure 95 per cent of its inputs from small suppliers — most of who used to fall out of the excise duty.
“So it means the excise rate that we have taken for that item is only theoretical in nature and actually we have done a substantial increase in its tax rate. Now it is being pointed out that we have arrived at a theoretical rate. So there is a need for rationalisation of tax rates. Instead of doing a piecemeal reduction here and there, we do need to look at the entire rate of 28 per cent,” said Mr Adhia.
However, the secretary said that rationalisation of rates will happen only after the fitment committee does a detailed calculations of its revenue impact.
“The fitment committee will have to look at how much revenue we got from this items from excise and VAT earlier before we agree to any further wholesale reduction of rates. If we find that revenue reduction is too much, we may have to do that in stages,” he added.
Industry experts have pointed that GST in the current form would benefit large companies and puts small firms in the unorganised sector at a great disadvantage.
While easy logistics helped the companies with nationwide sales, experts claim that GST has further dented the advantage of small companies which used to operate in one state with intrastate sales.
Another pain point in the GST is reverse charge, where the buyer will be liable to pay GST owed by his supplier, if the latter had defaulted on it.
This requirement, industry veterans claim, is forcing large companies to avoid procure their raw materials from smaller companies.
Though the GST Coucil has suspended the operation of reverse charge till March 2018, it is expected wreak havoc unless it amends GST rules to restore the confidence of large companies in small and medium scale companies.