GST Coun­cil to trim items in top tax slab



in­di­rect tax body the goods and ser­vices tax (GST) Coun­cil is set to trim the list of items in the high­est tax slab of 28% by shift­ing some items of com­mon use as well as prod­ucts made pre­dom­i­nantly by small and medium en­ter­prises (SMES) to a lower tax slab.

The tax rate fit­ment com­mit­tee, a panel of cen­tral and state of­fi­cials as­sist­ing the Coun­cil, is rig­or­ously comb­ing through the list of items in the high­est slab to iden­tify such items, two peo­ple with knowl­edge of the de­vel­op­ment said on con­di­tion of anonymity.

The Coun­cil wants to ad­dress the pub­lic per­cep­tion of high tax rates on cer­tain items of com­mon use as well as give fur­ther re­lief to SMES, which are labour-in­ten­sive. In­dia is home to around 56 mil­lion SMES, ac­cord­ing to data avail­able from the min­istry of mi­cro, small and medium en­ter­prises.

“Be­sides, SMES con­trib­ute only about 5% to the to­tal in­di­rect tax rev­enue. Hence giv­ing re­lief to them may not hit rev­enue col­lec­tion. The idea is to ease the pain, not to di­lute GST struc­ture,” said one of the two peo­ple cited above.

The rev­enue depart­ment fol­lows the thumb rule that 80% of the tax pay­ers con­trib­ute only i 20% of tax rev­enue, while the re­main­ing small sec­tion of as­sessees ac­count for the lion’s share of tax pro­ceeds.

The chal­lenge be­fore the Coun­cil is that tax rates ap­ply uni­formly to ev­ery busi­ness ir­re­spec­tive of their sales. “The same prod­uct may be man­u­fac­tured by large in­dus­try play­ers as well as SMES. In such cases, a rate cut will af­fect rev­enue re­ceipts from the big­ger play­ers too al­though they need no such re­lief,” said the sec­ond of­fi­cial cited above, who also spoke on con­di­tion of anonymity. The of­fi­cial added that the even­tual goal is to re­tain only so-called sin goods such as cig­a­rettes, the con­sump­tion of which the state wants to dis­cour­age, in the high­est tax slab. How­ever, the prun­ing of the items in 28% slab may be a grad­ual ex­er­cise as the Coun­cil has to also take into ac­count rev­enue con­sid­er­a­tions as tax eva­sion is com­mon in the coun­try, said the of­fi­cial.

M.S. Mani, part­ner-gst, Deloitte In­dia, said there is need for a relook at some of the com­monly used prod­ucts that have been classified un­der the 28% tax bracket. “While the rates were de­cided by the fit­ment com­mit­tee con­sid­er­ing the pre-gst ex­cise and VAT (val­ueadded tax) rates, there ap­pear to be some cases where the GST rates are op­ti­cally high and need to be re­con­sid­ered,” said Mani.

The GST Coun­cil chaired by fi­nance min­is­ter Arun Jait­ley will meet in Guwa­hati, As­sam on 9 and 10 Novem­ber to con­sider fur­ther chang­ing the lib­eral quar­terly tax fil­ing scheme called com­po­si­tion scheme meant for small busi­nesses.

Many prod­ucts got into the 28% slab at the time of fit­ting items into var­i­ous tax slabs as the ef­fec­tive tax bur­den on them, in­clud­ing cen­tral ex­cise and state VAT came in the range of 23-25%. The GST Coun­cil has al­ready shifted many items in this list to lower slabs.

At its 6 Oc­to­ber meet­ing, the Coun­cil shifted items such as stones used in floor­ing other than mar­ble and gran­ite, sta­tionery items such as pa­per clips, poster colours, some diesel en­gine parts and parts of pumps from 28% to lower slabs. The tax regime has 5%, 12%, 18% and 28% slabs and cess on some items fall­ing in the high­est slab.

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