Recent GST Changes: Tax Cuts to Boost Economy

In its 23rd meeting, the Goods and Services Tax (GST) Council, the apex decision making body on GST, introduced a slew of new measures to simplify the new tax regime. In a bid to benefit consumers and businesses and on the basis of continuous feedback received from various stakeholders, the Council decided to rationalize the tax rates of more than 200 items, with effect from November 15, 2017.

The Council slashed tax rates of 178 items, moving them from the 28% tax bracket to 18%. Items in this category include a variety of products including food and edibles, grooming products, personal accessories, wood and rubber products, and stone and ceramics. The 28% tax slab earlier had 228 items and now only consists of 50.

Rates on 13 items were lowered from 18% to 12% including items such as condensed milk, diabetic food, certain furniture items, etc. while rates on 6 items were moved from 18% to 5% such as puffed rice chikki, chutney powder, etc. Further, all restaurants now will be taxed at a uniform tax rate of 5% except for restaurants in five star hotels with room rent above Rs. 7500. However, restaurants paying 5% GST will not get Input Tax Credit.

GST on 8 items were brought down from 12% to 5% and on 2 items from 28% to 12%. Several products were moved from 5% tax rate to 0%.

As items of daily use get cheaper, the move is likely to give the economy a much needed boost by encouraging consumption. Also, higher compliance is likely to result from a simplified tax regime.

The Council’s decisions of categorizing items into different slabs depending on the type of consumption and shifting away from the earlier principle of rates being determined on the basis of excise plus VAT is indeed noteworthy. “Standard” or items of mass consumption now fall in the range of 12% or 18%, “demerit” goods fall in the highest tax category i.e. 28% while “merit” goods including items used by the poor have been shifted to 5% or the nil band.

To provide relief to the small and medium enterprises, the Council also approved revamping the Composition Scheme wherein the threshold of composition would be increased to Rs. 1.5 crore. A uniform tax rate of 1% would now be applicable for both traders and manufacturers.

The deadline for GSTR 3B filing has been extended till March 31st, 2018. The relaxation of timelines is a welcome move for the GST Network as it would give more time for streamlining work and improving processes related to GST.

The Government also recently approved the creation of the National Anti-profiteering Authority to ensure businesses pass on the benefits of the rate cuts to the consumers.

The Confederation of Indian Industry (CII) welcomes the changes in GST regime introduced by the Government and believes that these changes will go a long way in ensuring the success of this transformational tax.

While the reduction in rates of mass consumption items is a friendly and significant move by the Government, popular construction materials such as cement and paint continue to be in the 28% slab. Similarly, plywood is at 28%, and its substitute particle boards are at 12%. CII has requested for these anomalies to be looked at during subsequent Council meetings.

Sectors such as electricity, real estate and petroleum generate high revenues. As the aim of GST is the smooth flow of credit by removing the cascading effects of taxes, these sectors may be brought under the GST ambit within the near future.

It is also felt that further convergence of multiple tax rates, especially at the lower end of the rate slabs, would help in simplification of the tax structure and encourage greater compliance.

The setting up of a National Anti-profiteering Authority would ensure consumer protection and is a welcome move. Clear guidelines on the calculation of pricing and profits under the new tax regime and on whether anti-profiteering provisions would apply at an entity or product level would help facilitate pricing decisions.

Reconstituting or reviving of sectoral groups under the umbrella of the GST Council could act as an interface between the GST Council and taxpayers, facilitating interactions and exchange of inputs between the two. Government-industry task forces for identifying anomalies may be considered.

Earlier, centralized registration helped the service provider to control entire business operations from a single location, facilitating ease in compliance, maintenance of books, invoices and payments. Thus, it is suggested that the Government may consider restoring the earlier system of centralized registration.

The Government has proactively taken up the feedback received from industry on the operations of this major new tax reform in a solution-oriented mode, bringing much relief to consumers and enterprises alike. With such welcome calibrations to the GST regime on an ongoing basis, economic growth is bound to pick up in coming days.

 

 

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