Four-tier GST rate structure finalised: Arun Jaitley

The GST rates will become applicable from April 1, 2017.

Finance Minister Arun Jaitley today announced that the panel has fixed GST rate at 5%, 12%, 18%, 28% slabs.

Chief economic adviser Arvind Subramanian said the rate structure “should probably serve to lower inflation. and should probably bring it down”. The GST council meeting that concluded on October 20 proposed a much lower 26% GST sin rate which would have significant impact on the revenue as well as the health of our nation, both of which require serious consideration. “Hopefully there will be a single rate structure”. Additionally, the GST is expected to cut the multiple taxes paid on a single product making exports more efficient and the goods cheaper to consumers in India.

“As we are in a transition period, several industry sectors are faced with challenges of adapting to new tax regime”.

As for the food processing, the industry is taxed at a concessional rate/ zero rate.

The minister didn’t elaborate which tax rate will apply to the services which contribute almost 60 per cent of India’s $2.08-trillion economy. Further, it not clear as to whether few services would also have varying rate of GST. For this matter, a revenue pool will be created from the collections from the additional cess.

But barring products in the demerit category (aerated drinks, pan masala, tobacco), most tax experts and CEOs say that price hikes will be minimal in FMCG. While common use items will be taxed at the lowest rate of 5 percent, there will be two standard rates of 12 and 18 percent. “Critical to watch out for the list of commodities to be taxed at the highest slab of 28% as commodities covered in this bracket are likely to face a higher tax incidence than that under the current regime”, Dimri said. He added that the luxury cars, tobacco and aerated drinks would be levied with an additional cess on top of the highest tax rate.

“So the additional amount we charge on these products would be now charged as a cess”.

The cess, he said, would be lapsable after a period of five years. The government had initially proposed a 4% tax rate on gold. “The states may resist the use of this power till they are getting compensation from the Centre”.

Some also believe that the GST Bill gives states the flexibility to fix rates of State GST. “It is now essential that the categorisation of goods in these slabs is accomplished quickly”, said M S Mani, senior director at Deloitte Haskins & Sells LLP.

A major departure from the last meeting was that instead of 6% and 26% GST for “necessities” and “luxuries” respectively, the proposal is to have 5% and 28% GST.