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GST rate slashed on 23 items, more may follow next month

Team registrationADVISER
Dec 24, 2018
2 min read

NEW DELHI: Cinema tickets, third party motor insurance, smaller TV sets, power banks, flights for Haj and Mansarovar yatra and branded frozen vegetables will get cheaper with the GST council slashing rates on 23 items on Saturday. There are indications that rates will be pared for more item - including under-construction flats - when the panel comprising Union and state finance ministers meets in January.

With the latest round of cuts, effective January 1, the government has reduced rates on nearly 360 items since GST was introduced almost 18 months ago. There are indications that in the next meeting a simpler set of rules will be put in place for small- and medium-scale industries and small service providers.

Saturday's announcement will cost the exchequer around Rs 5,500 crore. Now, only 28 products such as cement, auto parts and air conditioners are left in the top slab of 28%, along with some luxury and "sin" goods.

"We have followed a pragmatic and prudent policy that as revenues move up and affordability increases, we gradually bring down the rates. The 28% bracket is already moving towards a sunset, except the luxury and sin items, three items (such as ACs) which are used by upper income groups and only one item (cement) of common use remains," finance minister Arun Jaitley told reporters after the meeting.

A reduction in rates on cement and auto parts from 28% to 18% would have left a Rs 33,000 crore fiscal hole, prompting the GST council to keep it for later.

"The selection of items where rate reductions (have been) announced appear to be influenced by the desire to minimise revenue dips. It also indicates that the process of rate rationalisation would continue where necessary in the GST stabilisation phase. With this round of rate reductions the GST rates on virtually every product are lower or equal to the indirect tax impact prior to GST," said M S Mani, partner at consulting firm Deloitte India.

Earlier in the week, Prime Minister Narendra Modi had articulated his government's intent to reduce the number of goods in the top bracket, saying that 99% of the items be in the 18% or lower slab. That had set off a political slugfest with Congress claiming credit for the rate cut. Jaitley hit back saying that Congress should be blamed for maintaining a 31% levy on several items for years before GST kicked in, which has now been reduced to 18%.

The finance minister said that apart from a decision on GST for under-construction residential units, the GST council will also look at the possibility of putting in place a simpler regime for small service providers who will be given the option of going for a "composition scheme" that will allow them to pay a flat rate of tax at a highly concessional rate, with the requirement to disclose only their turnover.

A review of the tax rate on lotteries, which ranges between 12% and 28% depending on whether it is "state-organised" or "state-sponsored", is also on the cards, along with a simpler dispensation for MSMEs.