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GST Council trims list of goods to be taxed at 28% to 50: Here's what it means

Neeraj Thakur | Updated on: 10 November 2017, 19:54 IST
(NOAH SEELAM/AFP)

Ahead of the Gujarat elections, where the BJP is facing resentment from the trader community over the structure and implementation of the goods and services tax (GST), the GST council on Friday decided to keep only 50 of over 220 items under the 28% slab.

Among these 50 items are high-end products like automobiles, washing machine, refrigerator, and sin goods like paan masala and cigars.

The GST, implemented in July, is one of the most complex of its kind in the world as the government came up with five tax slabs ( 0%, 5%, 12%, 18%, 28%) for various products. This was apart from keeping items like alcohol, real estate and petroleum products outside its ambit.

More so, the government has made things difficult by introducing different tax rates for similar and allied products. This made it difficult for traders to calculate the final bill on the basket of products.

The impact of the latest decision

According to Bihar Finance Minister Sushil Modi, the decision taken by the GST Council will have a revenue implication of Rs 20,000 crore. This shortfall in revenue will have to met by higher revenue generation through increased sales or the union government will have to compensate the state government for any shortfall in their share of quarterly share of taxes.

On 6 October, the government announced lowering the of tax rates on 27 products and a few services. In the same meeting, the government also asked a panel of state ministers to examine if the 18% GST on air-conditioned restaurants could be lowered.

With the latest decision, eating out also becomes cheaper. For restaurants and hotels (AC and non AC), GST has been fixed at flat 5%, who don't claim tax credit. For outdoor catering, the rate would be 18%. For hotels with fares below Rs 7,500 per room, the rate would be 5%.

As per the terms of agreement between the states and the Centre, the latter will compensate the former for any shortfall in revenue over the next five years.

The loss of revenue to a state will be the difference between the actual revenue collection to a state under the GST regime and the tax revenue it would have garnered under the old indirect tax regime after considering a 14% increase over the base year of 2015-16.

While the Centre is collecting funds for states compensation through cess on luxury and sin items, there is a limit to the amount of money that can be raised through such mechanism.

According to the Indian Express, “The Centre has provisionally released Rs 8,698 crore to all states and Union territories with legislatures, barring Rajasthan and Arunachal Pradesh, as compensation for revenue losses incurred during July-August on account of implementation of GST.”

While that compensation was only 58% of the amount collected by the Centre for meeting the shortfall in revenue collection, a Rs 20,000 crore rise lose in revenue would put immense pressure on the government resources.

Other contentions

Apart from multiple tax rates in the GST, the traders' community has been complaining about the tedious process of filing returns. Traders have faced problems in using the HSN Code (Harmonized System of Nomenclature) and filing returns using GSTR forms.

Every trader is supposed to file three returns per month apart from the annual return, making the total number of returns 37. This not only increases the compliance cost, but also delays refunds from the government in case of failure on the part of the trader. Many traders have been peeved due to levy of fine by the government for failing to file returns on time, which according to the is not deliberate.

What's at stake

Recently, Congress Vice-President Rahul Gandhi, while campaigning in Gujarat, said his party will overhaul the GST if given a chance in 2019 Loksabha elections. The statement resonated among traders across the country who have been up in arms against the structure of the GST even before it was implemented by the government.

The challenge for the BJP is to set things right even before the Gujarat state assembly election in December 2017. For the Congress, the hope lies in the failure of BJP's efforts.

First published: 10 November 2017, 19:54 IST
 
Neeraj Thakur @neerajthakur2

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