Open Forum
New
Delhi, 22 June 2017
GST To Roll
WILL IT BRING TAX REFORMS?
By Dhurjati Mukherjee
The Goods and
Services Tax (GST) is set to become operational from July. Rationalisation of
taxes is long felt need and the GST structure is expected to deliver. It would
replace a cascade of 11 Central and State taxes with a concertina of eight tax
rates, defeating the original idea of having a three-slab tax structure. The
current GST structure on goods ranges from 0 to 28 per cent.
It is expected to
inflate prices of consumer durables like television, air conditioner,
refrigerator and washing machine which may go up by around 3 to 4 per cent. Smaller
home appliances like electric irons, mixer grinders and juicers will too become
dearer as all will come under one GST slab. However, these should not have been
equated with white goods like ACs etc. And, the tax on these would be one of
the highest globally and certainly maximum among countries of our size.
All home appliances
and consumer durables will now attract 28% tax, which varied for different
products earlier. The government should use this opportunity to rationalise
rates rather than simply going ahead with mechanical grouping. For durables
like TV, AC etc, the cumulative tax (excise and VAT) was around 23-28%
depending on the State. Prices in cities like Mumbai may reduce as there was
additional octroi of 5% on consumer goods. Further, the tax burden of white
goods companies would not rise much due to input tax credit which means
companies will get credit for all taxes paid. For example, if a company’s GST
liability on a product is Rs 500, it will pay only Rs 400 and will get tax
credit of Rs 100 for taxes paid by its vendors and suppliers earlier.
In the realm of
health, the switchover to GST is likely to affect prices of medicines which may
fluctuate in coming months. Medicines other than baby food, life saving drugs
and contraceptives, may feel the push and pulls due to varying GST rates.
However, there is no tax on baby foods, 5 per cent on life saving drugs and 12%
on all other drugs and 18% on food supplements.
There is a
possibility of a price push for drugs which are proposed to be taxed in the 12%
slab under GST as against prevailing average taxation of around 9 per cent. The
increase in prices of schedules drugs, according to NPPA, is expected to be
around 2.29 per cent. Many life saving drugs that are part of the National List
of Essential Medicines (NLEM) are included in the list of scheduled
formulations which comprise 25-30% of the pharma retail market. In fact, the
Drug Prives Control Order (DPCO), companies have been allowed to increase their
MRP by up to a minimum of 10 per cent annually.
Regarding education,
the GST Council has rightly decided to exempt services provided by educational
institutions to its students. However, services to higher educational
institutions are not GST free and they will have to pay when availing these, obviously
diluting objectives of keeping educational institutions outside the GST
ambit.
It needs to be
clarified that GST exemption on procurements is available only to schools from
pre-school to higher secondary level. The input or supply of services such as
transportation, catering, housekeeping, services relating to admission or
conduct of examination in higher educational institutions will bear a GST levy,
which partly defeats the purpose. Though the effect may be marginal, some sections
feel this may be a deterrent to foreign students.
Coming to garments,
GST rates have been reasonably fixed for at 12% for those costing above Rs 1000
while those below would attract a moderate 5 per cent. The industry has been
paying VAT of 5.5-6 and 7-7.5 for garments above Rs 1000. Similarly, footwear
below Rs 500 will attract a modest 5 per cent while those priced above Rs 500
will be taxed 18 per cent. Presently, taxes are more and the switch raises
possibility of lower prices.
The GST on gold and
silver has been reduced to 3 per cent which is welcome by the industry,
specially artisans and in Bengal, as it would give a further boost to the
sector, which employs millions. This is a new category as also rough diamonds
which has been kept at 0.25.
Some items like
fruits and vegetables have been exempt. When bread could be exempt from tax,
pickles and ketchup have been recently reduced to 12% and cashew nuts from 12-5%,
GST for biscuits shouldn’t have been fixed at 18% as this is unreasonable.
For Industrial
products, rates have been fixed at 18% while today a manufacturer pays around
28-30% as taxes, which means a 10% saving. The lower tax rate, simplified tax
structure, technology driven easy tax compliance system would obviously give a
push to manufacturing and help in increasing its share of GDP from current 17.4%
to 25% by 2025. Equally important decision is fixation of tax on coal at 5 per
cent against 11.30%, obviously aimed to boost electrification in the country.
It is believed that
GST would raise productivity and prices. How much of this would become a
reality by combining GST with a clearly articulate manufacturing strategy to
attract global investments, create jobs and make India a large manufacturing
nation, remains to be seen. Moreover, the buoyancy in the economy expected
after GST becomes operational, as envisaged by revenue secretary, would be
awaited.
In the hospitality
sector, there has been some change with hotel rooms below Rs 1000 not
attracting GST, those costing Rs 1001-Rs 2500 to be taxed 12 per cent and
between Rs 2500-Rs 7500 18% from the earlier 28%. But 5 Star category hotels, i.e.
above Rs 7500, tax will be 28%. Similarly, restaurants in 5 Star hotels will
face 18% levy instead of 28% approved earlier. A study by HVS, global
hospitality research and consulting firm, found that India would move ahead of
cities like Colombo, London, Chicago, Dhaka and Tokyo.
The Council significantly
addressed concerns of small businesses by increasing the threshold of turnover
for entities that could opt for the composition scheme to Rs 75 lakhs from Rs
50 lakhs earlier. These traders with turnover below Rs 75 lakhs could opt for
the scheme and pay taxes at 1, 2 and 5 per cent respectively, thereby relieving
them from GST’s complexity and instead pay a percentage of their turnover.
Meanwhile in the GST
Network, the company readying technology backbone for the new regime, dismissed
fears that online tool would be too cumbersome for small businesses, arguing
that even under the current regime they are using web-based service for VAT and
service tax registration. Further, it was working on a scalable model and had
enough capacity to deal with large
number of invoices that may be generated -- estimated 3.2 billion.
The three stage
mechanism has been put in place by the GST Council to deal with consumer
complaints, drawing upon the experience in Australia. Finally, one cannot deny
that the tax structure has been so designed so as to provide relief to the
common man. Though the objective of one nation-one tax has not been fulfilled,
the beginning has been made in right direction. However, in the coming two
years or so, the government would need to try to at least club the taxes into
three slabs. ---INFA
(Copyright, India
News & Feature Alliance)
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