Guwahati: In the biggest GST rejig yet, tax rates on over 200 items, ranging from chewing gum to chocolates, to beauty products, wigs and wrist watches, were on Friday cut to provide relief to consumers and businesses amid economic slowdown.
As many as 178 items of daily use were shifted from the top tax bracket of 28 per cent to 18 per cent, while a uniform 5 per cent tax was prescribed for all restaurants, both air- conditioned and non-AC. Currently, 12 per cent GST is levied in non-AC restaurants and 18 per cent in air-conditioned ones.
Finance Minister Arun Jaitley said the restaurants were not passing on the input tax credit (ITC) to customers and so the ITC facility is being withdrawn and a uniform 5 per cent tax is being levied on all restaurants. However, restaurants in starred-hotels that charge Rs 7,500 or more per day room tariff will be levied 18 per cent GST but ITC is allowed for them. Those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 per cent GST but will not get ITC.
The all-powerful GST Council pruned the list of items in the top 28 per cent GST slab to just 50 from the current 228. So, only luxury and sins goods are now in highest tax bracket and items of daily use are shifted to 18 per cent. Also, tax on wet grinders and armoured vehicles was cut from 28 per cent to 12 per cent, the tax rate on six items reduced from 18 per cent to 5 per cent, on 8 items from 12 per cent to 5 per cent and on six items from 5 per cent to nil.
Chewing gum, chocolates, coffee, custard powder, marble and granite, dental hygiene products, polishes and creams, sanitary ware, leather clothing, artificial fur, wigs, cookers, stoves, after-shave, deodorant, detergent and washing power, razors and blades, cutlery, storage water heater, batteries, goggles, wrist watches and mattress are among the products on which tax rate has been cut to 18 per cent.
The top tax rate is now restricted to luxury and demerit goods like pan masala, aerated water and beverages, cigars and cigarettes, tobacco products, cement, paints, perfumes, ACs, dish washing machine, washing machine, refrigerators, vacuum cleaners, cars and two-wheelers, aircraft and yacht.
The cut in tax will cost the exchequer Rs 20,000 crore in revenues annually, Bihar Deputy Chief Minister Sushil Kumar Modi said. Launched on July 1, the GST weaved 29 states into a single market with one tax rate but while traders and small business complained of increased compliance burden, voices of dissent rose on high tax rate on some common use goods.
With economy growing at its slowest pace since Narendra Modi government came to power, the “panic-stricken government has no option but to concede demands for change” in the tax, former Finance Minister P Chidambaram said on Twitter.
Easing the compliance burden, the council also relaxed the return filing criteria and lowered the penalties for late filing. Bipin Sapra, Tax Partner, EY India, said, “While the reduction of rates would substantially reduce the prices of a number of commodities, however the government may need to balance the revenue considerations too.”
Krishan Arora, Partner, Grant Thornton India LLP, said the decision of GST Council on pruning the 28 % slab list would be a welcome move for many industries in mass consumption space. In certain cases, it is also likely to bring down the total tax impact, even lower than that in earlier regime, which would be a big relief to the industry as well as consumers.
Rationalisation exercise of tax slabs needs to be carried out comprehensively keeping in mind the significance of the industry and the overall tax incidence under the earlier regime, Arora said.
Vishal Raheja of Taxman described the move as “great step” and said, “In future, we may expect that Government will further slash tax rates by moving from 4-tier tax slabs to lesser slabs or even single GST rate”.
Abhishek A Rastogi of Khaitan & Co said while it was expected that there will be rate cuts, it was never expected that the list will be trimmed down so significantly. “With the rate reduction on a plethora of products, the next step of the government should be to ensure that the benefit of the rate reduction goes to the consumers,” he said.
‘‘It appears that after this mass rate reduction various anti- profiteering problems may kick off for businesses which would not pass on the benefit to the consumers.”