GST clears rate hurdle

Major hurdle for the implementation of the much-awaited Goods and Services Tax (GST) was cleared when the GST Council finalised tax rates for most of the goods and services at its meeting in Srinagar, the summer capital of Jammu & Kashmir, last week.

The all-powerful GST Council headed by Finance Minister Arun Jaitley and comprising state finance ministers as members chose cooler climes of Srinagar for its latest sojourn when rest of the country had been reeling under an unprecedented heat wave, but the outcome of its key meeting was not as cool as expected.

The first day of the two-day meet was devoted to goods and the Council was able to decide GST rates on 1,211 items, barring gold and five other goods. As expected, food grains and daily use commodities were exempted from taxation, making them cheaper from July 1 when the 'one-nation-one-tax' regime kicks in as scheduled.

But only seven per cent of the total items fall under the exemption list while 14 per cent of them attract the lowest tax slab of 5 per cent. As many as 17 per cent have gone into 12 per cent slab, but the lion share of 43 per cent items have been pushed into the standard 18 per cent tax bracket, thus slotting 81 per cent of goods into a bracket of 18 per cent tax or less.

And only 19 per cent of the items will attract the fourth and top tax slab of 28 per cent and more if we take cess into consideration. Going by the finalised tax rates, small cars are expected to turn expensive as they are slotted in the top slab (28 per cent) with additional cess ranging from 1 per cent on small cars to 15 per cent cess on luxury cars.

Refrigerators and ACs attract top 28 per cent tax rate, but the biggest beneficiaries are those who consume coal as this combustible black rock is in the lowest tax bracket of five per cent as against the current tax incidence of 11.69 per cent. Therefore, we can expect significant fall in the tariff of power produced at thermal plants post July 1.

The Council focused on services on the second day and slotted all the services, like in the case of goods, into four slots of 4, 12, 18 and 28 per cent. While education and healthcare services were exempted, telecom and financial services will come under the standard rate of 18 per cent. That means people making phone calls will have to shell out more as the current tax incidence on telecom is 15 per cent.

This has not gone down well with telecom companies which objected to the proposed tax rise, but Jaitley assured that telecom charges would not go up under GST in view of input credit being offered. He also claimed the GST rates are anti-inflationary as taxes will not go up. Though some say GST will boost tax revenues, Fitch Ratings feels it will not raise tax revenues significantly in next few years. So, it will be mostly business as usual post July 1!