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Tax rates under GST to stay close to present levels
April, 13th 2017

With the government keen to keep prices under check, most commodities are likely to be taxed at rates closest to their existing rate structure under the Goods and Services Tax.

“Most goods as well as services will be taxed at the slab of 18 per cent to 22 per cent,” said a person familiar with the development, adding that this will be especially followed in the case for inputs.

But, exceptions in the form of goods such as high-end electronic and consumer durables, gourmet food items and gold could be there, where the tax liability under GST could be marginally higher than the existing rates. Food items, especially those of mass consumption will continue to attract nominal tax rates under GST. Similarly, while most services will be taxed at a higher rate of 18 per cent as against the current rate of 15 per cent, exceptions such as road transport are likely to continue which will be taxed at the existing rate that includes abatement. Some including education, healthcare and even pilgrimage related services will continue to enjoy exemptions.

These are understood to be some of the key proposals under consideration as the committee of State and Union Finance Ministry officials work on the fitment of commodities in the four-tier rate structure under GST.

The Council in its meeting in November had agreed to a four-rate structure under GST of 5, 12, 18 and 28 per cent. The Council in its next meeting on May 18 and 19 is expected to review the fitment of commodities though officials said that another round of meetings may be required before the rates will be finalised.

The proposal is understood to be in line with the general view that goods and services will not become costlier under GST. Further, it will also take care of demands of some States that had said that luxury or high end items should not attract very low rates under the new tax regime.

Fitment taking time
“The exact fitment of commodities will still take some time as the process is under way. But the general view is that consumption should not be impacted due to higher taxes,” said a person familiar with the development.

Tax experts pointed out that if the rates of central excise duty and value added tax were simply added under GST, the incidence on most commodities would significantly increase.

For instance, items such as refrigerators, washing machines, air conditioners attract 12.5 per cent central excise duty and 14 per cent VAT. When added, this would indicate a GST rate of 28 per cent. But, at present, these items also get abatement on central excise, which makes the effective rate close to 8 per cent.

“Mathematical equation for computing tax rates under GST should not be applied as it is unless effective excise rate after abatement for MRP based products, goods for common man are factored in properly otherwise it will make items more expensive. Also if services are taxed at 18 per cent, it will add to inflation,” said Bimal Jain, Chairman, Indirect Taxes Committee, PHDCCI.

Agreed Pratik Jain, Leader (indirect tax), PwC, and said, “The proper method would be to compute the central excise duty on the abated value, else most goods could fall under the 28 per cent slab as the government is looking at fixing the closer to the current rates.”

Experts also noted that the government has retained the power to levy cess on additional items under GST, which is making the industry worried.

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