GST rate raised on some household, farm items

States seeking an extension of the guaranteed compensation period were unable to make any headway at the meeting of the Goods and Services Tax Council that ended Wednesday, even as the body rationalised rates and removed exemptions, measures that experts said would add to the stability of the Goods and Services Tax regime.

Students, housewives, farmers and tourists will need to pay more for some items of daily use after the GST Council decided to raise levies on a host of items, including ink, pencil sharpeners, cutlery, LED lamps, power-driven pumps, and dairy, poultry and horticulture machinery.

The move, which also involves removing some tax exemptions, is aimed at ironing out inconsistencies in the structure that led to what is known as “duty inversion”, the finance minister said following the conclusion of the council’s meeting, but the decision – collectively taken by states and Centre – was panned by some opposition parties for its potential to fan inflation.

A proposal to levy 28% GST on casinos, online gaming, horse racing and lottery was deferred, Union finance minister Nirmala Sitharaman said on Wednesday, following the two-day meeting of the council.

The increase in levies will be in the range of 1.25-13 percentage points and will come into effect on July 18. Experts said the changes take GST closer to its originally envisioned structure — few rate slabs and fewer exemptions. The process is expected to boost revenue collections that have been in excess of 1.4 lakh crore a month over the past three months.

When GST was envisioned, states were promised a guaranteed 14% increase in revenue annually, with the Centre making good on the shortfall through a cess on luxury and sin products. That comes to an end on June 30, and while some states have been pushing for it, the Centre isn’t keen on doing so. Experts maintain that a stable revenue-neutral rate (the current revenue-neutral rate is too low) should address concerns of the states, and also motivate them to accept rate increases.

The council also decided to cut GST on some health-related items and on fares for ropeways used to transport goods and passengers.

Addressing a press conference in Chandigarh, Sitharaman, who is the chairperson of the council, said the decisions to correct duty inversion and withdraw tax exemption was taken unanimously by all members on the recommendation of the group of ministers (GoM) headed by Karnataka chief minister Basavaraj Bommai.

“There was no opposition to any increase or anything to do with the rates. There was not one…,” she told reporters while briefing the outcomes of the meeting.

But opposition parties attacked the Union government for raising prices at a time when people have been reeling under the pressure of high inflation. Even before the Council’s meeting ended, Congress leader Rahul Gandhi called GST as “Grihasthi Sarvanash Tax” (household destruction tax).

A central government official, who was at the meeting and asked not to be named, said: “Nobody, not even Congress-ruled states, raised any voice against the move in the meeting.”

While pre-packed curd, lassi and buttermilk are set to become costlier with the introduction of a 5% tax on them, GST on banks’ cheques (till now, there was no GST on getting cheques issued, whether in loose or as a book) have been raised from zero to 18%. Students and professionals using maps and hydrographic charts, including atlases, will have to pay a 12% GST as the council decided to remove these items from the exempt list. The council also decided to raise GST on petroleum and coal bed methane from 5% to 12%, and e-waste from 5% to 18%.

It, however, decided to reduce GST on certain health-related items such as ostomy and orthopaedic appliances from 12% to 5%, according to an official statement. It also decided to reduce GST on diethylcarbamazine (DEC) tablets supplied free of cost for the National Filariasis Elimination Programme from 5% to zero. While the council reduced tax on transport of goods and passengers by ropeways from 18% to 5%, it slashed GST on renting of truck inclusive of fuel cost from 18% to 12%.

The GST Council is the apex decision-making body on the indirect taxes represented by the Centre and states, and barring one instance related to tax rate on lottery, all its decisions have been based on consensus since its inception in July 2017.

The Council has withdrawn several exemptions on services also to expand the tax base. Now only economy class passengers will be able to enjoy GST-exempted transport from the north-eastern states and Bagdogra.

There will no longer be tax exemption on transportation of railway equipment, warehousing of commodities that attract tax (nuts, spices, copra, jaggery, cotton), fumigation in a warehouse of agricultural produce, services provided by financial institutions and regulators such as the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority (IRDA), the Securities and Exchange Board of India (Sebi), the Food Safety and Standards Authority of India (FSSAI), and the Goods and Services Tax Network (GSTN).

Renting of residential dwelling to business entities, and services provided by cord blood banks by way of preservation of stem cells will no longer be tax exempt either, according to the official statement.

From July 18, hotel accommodation priced up to 1,000 per day will not enjoy any exemption and it will attract a 12% GST. Similarly, room rent (excluding ICU) exceeding 5,000 per day per patient charged by a hospital shall be taxed to the extent of amount charged for the room at 5% GST without input tax credit (ITC), it said. “Tax exemption on training or coaching in recreational activities relating to arts or culture, or sports is being restricted to such services when supplied by an individual,” it added.

According to Sitharaman, the Wednesday’s decisions are based on the recommendations of the GoM related to correction of duty inversion and withdrawal of exemptions. A third and major exercise to rationalise GST slabs is expected later as the council has given additional time to the group to undertake the exercise.

Abhishek Jain, partner, Indirect Tax at consultancy firm KPMG in India, said: “The GST council has provided an extension of a few months to the GoM to submit its report on tax slab rationalisation. Considering that the current revenue neutral rate is short of the target rate of 15.5%, new GST tax slabs may be expected.”

MS Mani, partner at Deloitte India said: “The withdrawal of certain exemptions and multiple rate changes announced today are part of the overall rate rationalisation exercise as the GST architecture, as originally envisioned, had few rates and very few exemptions. It seems that over a period of time, GST is now moving in that direction.”

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