India unveils four GST rates for services
new delhi — India on Friday unveiled four rate bands under a new sales tax for services such as telecoms, insurance and restaurants, a move experts said could complicate compliance and leave businesses at the mercy of an intrusive tax bureaucracy.
The Goods and Services Tax (GST), set to be launched from July 1, will have rates of 5, 12, 18 and 28 per cent for services, in line with those applying to goods. It is a big departure from the current regime, where a single rate of 15 per cent is applied on most services.
The biggest argument in favour of the GST — India’s biggest tax overhaul since independence in 1947 — is that it would make it easier to do business by simplifying the tax structure and compliance.
But the political challenges of striking a compromise between Prime Minister Narendra Modi’s central government and India’s federal states and territories has meant that life will get more, not less, complicated for many.
For example, hotels and restaurant would be taxed on the basis of their room tariff and turnover of business. Air-conditioned restaurants will even be taxed at a higher rate under the new regime than those without.
“For service providers, it is going to get troublesome,” said Saloni Roy, a senior director at tax consultancy Deloitte Haskins & Sells LLP.
Multiple rates
Since services account for more than half of India’s $2 trillion economy, the complexities run the risk of derailing the sector’s growth and even slowing Asia’s third-largest economy. The government, however, defended the move, saying different economic classes can’t be taxed at the same rate. Finance Minister Arun Jaitley also played down concerns that higher headline rates would inflate the tax burden on consumers. Since service providers will get tax input credits, he said, the effective tax rate will be lower.
“The actual incidence on consumers will go down,” Jaitley
The actual incidence on consumers will go down
Arun Jaitley, India’s Finance Minister
told reporters after a two-day meeting with his counterparts from Indian states.
Under the new regime, while healthcare and education services will be tax exempt, services offered at five-star hotels will be taxed at 28 per cent. Telecoms and financial services will be taxed at a standard rate of 18 per cent. An industry group representing mobile operators said this would further bleed a sector still smarting from a price war triggered by the aggressive market entry of billionaire Mukesh Ambani’s Reliance Jio.
“This is likely to slow down the planned rollout of infrastructure,” Rajan S. Mathews, director general of the Cellular Operators Association of India.
The long-awaited GST will replace a slew of federal and state levies, seeking to transform a country of 1.3 billion population into a single market.
The measure has also been touted as the biggest reform undertaken by Modi to transform the South Asian nation into a business friendly destination. — Reuters
new delhi/toronto — Tea will be taxed at five per cent and chewing tobacco will face a 160 per cent levy after India finalised most rates for a new goods and services tax, clearing the way for the biggest shakeup in the nation’s tax system since independence in 1947.
Rates for more than 500 services and 1,200 goods were fixed, or 80 per cent to 90 per cent of items were slotted into the GST’s five broad rates in meetings on Thursday and Friday between the government and state ministers as the country races to meet the July 1 implementation deadline.
“It’s the last lap now of the GST roll out,” Manjoy Bahety, a vice president at Mumbai-based Edelweiss Securities said in a note. “The council’s decisions suggest a July 1 rollout is almost a certainty now.”
The tax is the culmination of a 10-year effort to streamline India’s archaic tax system and unify the nation of 1.3 billion people into a common market. A major policy goal for Prime Minister Narendra Modi, the GST will subsume more than a dozen federal and provincial levies in a bid to free up trade, make it easier to business and foster tax compliance in the world’s fastestgrowing major economy.
The “overall impact is not inflationary,” Finance Minister Arun Jaitley told reporters late on Thursday after meetings in Srinagar, a city in the northern state of Jammu and Kashmir. “The tax burden hasn’t increased in any commodity. In many there is a reduction, particularly as tax on tax is gone. On some we have deliberately brought tax down.”
Much of the work on the GST had already been completed including the five broad “slabs” or tax rates.
These include a rate of zero for essential items such as grains, five per cent for mass consumption items like coffee and commonly used products such as processed foods at 12 per cent. Rates for household goods like soaps were pencilled in at 18 per cent and durables such as LED TVs at 28 per cent.
The tax burden hasn’t increased in any commodity. In many there is a reduction, particularly as tax on tax is gone. On some we have deliberately brought tax down Arun Jaitley, Indian Finance Minister
The government announced a detailed list on Thursday which included a tax rate of five per cent for tea, 12 per cent for live horses and 28 per cent for razor blades. Key categories where rates will be higher than the current rate are twowheelers, small cars, cement, fruit juices and chocolates, according to Mumbai-based brokerage Kotak Institutional Equities.
Luxury items will face a levy beyond the 28 per cent top rate, including 160 per cent levy for chewing tobacco, 12 per cent for soft drinks and 72 per cent for hookah products. GST rates for certain goods like textile, footwear and precious metals are yet to be decided by the GST Council.
On Friday it said railway and air transport services would attract a five per cent rate, luxury hotels would take the highest rate, while health care and education would continue to be exempt.
The rest of the service sector would fall into the various categories. Nearly 81 per cent of the items will fall below the 18 per cent rate, Revenue Secretary Hasmukh Adhia said.
Rates for the final products such as gold and other details will be decided at the next meeting of the GST Council on June 3 in Delhi, Jaitley said.
The Nifty Fast Moving Consumer Goods Index closed up 2.1 per cent as the tax is poised to lower rates on some products such as soaps. Colgate-Palmolive India rose 3.5 per cent after the rate on toothpaste was set at 18 per cent compared with a 22 per cent to 26 per cent levy seen earlier. ITC, which gets about 25 per cent of revenue from consumer products other than cigarettes, gained three per cent. — Bloomberg