The Goods and Services Tax Council on Friday sharply reduced to just 50 the number of items in the highest tax rate of 28%. At its 23rd meeting in Guwahati, chaired by Union Finance Minister Arun Jaitley, the Council also staggered the return filing process, reduced the tax rates on restaurants and expanded the Composition Scheme for small firms.
Tax experts termed the Council’s decisions – virtually upending the original GST structure — as a bold decision ahead of the Gujarat elections. The decisions are expected to win over businesses struggling to cope with the transition to the new indirect tax system.
The Council decided to reduce the tax rate on 178 of current 228 items from 28% to 18%, with effect from November 15. Items with tax rates reduced to nil from 5% include guar meal, sweet potatoes, and dried or frozen fish. “All restaurants will be taxed at 5%, except those in hotels with a tariff of ₹7,500 or more, which will be taxed at 18% with input tax credit (ITC). Outdoor catering will be taxed at 18% with ITC,” Mr. Jaitley said.
The items in the 28% slab that have got cheaper include wires, cables, insulated plugs, furniture, bedding, mattresses, suitcases, detergents, shampoo, perfumes, lamps, wrist watches, and slabs of marble and granite. Items that have seen their tax rate reduced to nil from 5% include guar meal, sweet potatoes, and dried or frozen fish. Mr. Jaitley said the Council discussed several important items and was presented an analysis of the revenue collected during the first three months of GST implementation.
“Today, there are 228 items of goods that are in the 28% slab,” Mr. Jaitley said speaking to reporter after the meeting. “The fitment committee, following the last meeting, looked at rationalising these and gave suggestions.” “Items on which cess is currently being applied, such as luxury, sin, and some white goods, will continue to be taxed at 28%,” Mr Jaitley added. “Two items have been reduced from 28% to 12%.”
“The consumer products industry welcomes this change,” Aashish Kasad, Partner and Consumer Products & Retail Sector Tax Leader, EY India said. “ These revisions are expected to reduce prices and increase consumption and thereby bring growth.”
“The Indian cement industry finds itself retained in the 28% GST bracket, along with luxury items such as washing machines and air conditioners,” S. Chouksey, president, Cement Manufacturers’ Association said in a note. “This is a disappointment for the entire industry as cement is integral to the government’s key schemes such as Housing for All, Swachh Bharat and building of other infrastructure projects that are fundamental for building an India for the future.”
“All the members of the Council felt that the restaurants have not passed on the benefit of input tax credits (ITC) to the customers,” Mr Jaitley said. “So, there was an additional burden on the customers, while the restaurants benefited from the ITC.” “The Council has decided that restaurants will not get the benefit of ITC,” Mr. Jaitley added.
The GST Council decided to ease the return filing process for both small and larger businesses. “The filing of the form 3B will continue till March 31,” Revenue Secretary Hasmukh Adhia said. “And we will further ease this form for those businesses who file returns but have no tax liability. We have found that there are 30-40% of such businesses.”
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