GST: Essential to keep track of item-wise rates schedules
Source: Business Standard
With the conclusion of the first day of the 14th round of the GST Council’s meet, GST is heading closer to timely implementation across the country. The Council’s approval to over seven draft GST rules and fitment of over 1,211 commodities (with an exclusion of six items) in various tax slabs takes GST framework towards finality. With these announcements, India Inc now has sufficient information to realign its reporting systems and existing processes in line with GST requirements.
The broad categorisation of the commodity universe suggests that most of the items would attract 12 or 18 per cent of GST. Around 60 per cent of the items have been indicated to fall within these two categories with only around 19 per cent of the items are indicated to be pushed towards the higher rate of 28 percent or more (considering cess would apply on certain items). In line with earlier indications, foodgrain and milk have been exempted from GST while essential commodities such as edible oil, sugar and tea are pegged at five per cent. Also, some of the daily consumption items such as toothpaste and hair oil have been announced to be taxed at 18 per cent which is lesser than the existing effective tax rates on these items. These announcements of keeping items of mass consumption in the lower tax slabs suggests the government’s intention towards a pocket-friendly GST regime for the common citizen.
The list of exemptions appears to be substantially trimmed, as compared to the existing regime, with only seven per cent of total items indicated to be kept nil-rated under GST. While this would broaden the tax base under GST, some of the sectors may be introduced to tax compliances, which could be new to them. Though this might lead to teething troubles for these sectors, overall benefits are much to be rejoiced for. By bringing existing exempt sectors under the taxation net in GST would lead to availability of input tax credits, which can be used to offset output GST liability. This should create transparency in taxes that a consumer actually pays while buying an exempt product by way of hidden tax costs. Also, the tax credit chain would remain intact for these sectors.
While the rates for services are yet to be decided by the Council, services are expected to get dearer as the existing 15 per cent of service tax could go up to 18 per cent of GST. However, due to enhanced input tax credit base for service providers, the impact of incremental tax rate might get offset.
Overall, the announcements have been positive thus far. However, it would be crucial to keep track of item-wise GST rates schedules. This is essential for the businesses to realign their IT systems, undertake cutover planning and formulate their pricing strategies in view of the transition to GST. The recent announcements have added credence to the government’s intention of rolling out GST by July 1. Considering the limited time on hand, with the GST countdown drawing closer, industry must brace for the changes and gear up for the upcoming reform to ensure a smooth GST transition for their businesses.