Is the 3 slab GST rate adequate?

  10-Aug-2018 12:35:27


Goods and Services Tax (GST) is a single tax on the supply of goods and services, right from the manufacturer to the end consumer. It aims to remove the unpredictability and bring equality in the prices of products across the country. It eventually aspires to reduce the manufacturing cost of businesses and create a unified and streamlined market where the cost of goods and services will be more even across the country.

The GST Council in its 23rd meeting on November 10, 2017, recommended widespread changes in the Goods and Services Tax (GST). The council has decided to keep the highest 28% tax on luxury and sinful items as a result 177 items have been shifted to the 18% bracket. GST on many items has also been reduced.

GST has been structured in a way that essential services and food items are placed in the lower tax brackets, while luxury services and products have been placed in the higher tax bracket. The GST council has fitted over 1300 goods and 500 services under four tax slabs of 5%, 12%, 18% and 28% under GST. This is aside from the tax on gold that is kept at 3% and rough precious and semi-precious stones that are placed at a special rate of 0.25% under GST.

Ruling out a single rate Goods and Services Tax (GST), Chief Economic Advisor Arvind Subramanian on Wednesday pitched for a three-rate structure going forward as revenues stabilise. He said GST is a "work in progress" and there is a need for further simplification of rates with fewer exemptions and simpler policies. "In India, we can never have one rate. I had recommended a standard rate and one for demerit good, one for a low rate. I think, in India, the debate should be about 'why can't we have three', rather than 'why not one'," Subramanian said at an NCAER event here. Subramanian said since GST is a regressive tax, it won't be "fair" to have a single rate structure unless there are instruments to protect the poor who get hurt by rising costs.

"...I think over time we will see simplification. For example, once the revenue stabilises, 28 per cent can be rationalised.... but the broader point I want to make is that why can't we have three tax slabs. That's what we should ask for," said Subramanian.

Union Minister Arun Jaitley too had dismissed the idea of a single rate GST as "flawed" saying that it can only work in a country where the entire population has 'similar and high' capacity to spend.

Subramanian said that GST implementation "has not been too bad" in the first year of difficult implementation.

"My own view is the more you rely on a carrot, and less you rely on sticks, you facilitate formalisation of the economy. That's what I like about GST. It is not heavy-handed. Its a kind of self-policing," he said.

GST, which subsumed over a dozen local taxes, was rolled out on 1 July 2017.

The CEA headed panel had in its report way back in 2015 had recommended a range for revenue-neutral rate (RNR) of 15-15.5 per cent for the proposed GST, with a preference for the lower one.

"One of the things we all were unanimously in favour of was a fiscal council. I think we need to get more independent people doing this (government accounting) with better access to data...People should have trust that everything is properly accounted for, he said.

A total of 81% of all the goods and services fall below or in the 18% tax slab. This means 7 % of the items come under the exempted list, 14% of the items attract a 5% tax, 17% of the items attract a 12% tax, and 43% of the items attract an 18 % tax slab, while only 19% of the items fall under the highest slab of 28% in the new regime. Below is a list of some of the products that will be a part of the respective slabs:

Exempted GST Rate Slab (No Tax)

7% goods and services fall under this category. Some of these that are of regular consumption include fresh fruits and vegetables, milk, buttermilk, curd, natural honey, flour, besan, bread, all kinds of salt, jaggery, hulled cereal grains, fresh meat, fish, chicken, eggs, along with bindi, sindoor, kajal, bangles, drawing and coloring books, stamps, judicial papers, printed books, newspapers, jute and handloom, hotels and lodges with tariff below INR 1000 and so on.

5% GST Rate Slab

14% goods and services fall under this category. Some of these include apparel below INR 1000 and footwear below INR 500, packaged food items, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, cashew nut, cashew nut in shell, raisin, ice, fish fillet, kerosene, coal, medicine, agarbatti (incense sticks), postage or revenue stamps, fertilizers, rail and economy class air tickets, small restaurants, and so on.

12% GST Rate Slab

Edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausages, fruit juices, namkeen, ketchup & sauces, ayurvedic medicines, all diagnostic kits and reagents, cellphones, spoons, forks, tooth powder, umbrella, sewing machine, spectacles, indoor games like playing cards, chess board, carom board, ludo, apparels above INR 1000, non-AC restaurants, business class air ticket, state-run lottery, work contracts and so on attract a 12% GST. 17% of goods and services fall under this category.

18% GST Rate Slab

43% of goods and services fall under this category. Pasta, biscuits, cornflakes, pastries and cakes, preserved vegetables, jams, soups, ice cream, mayonnaise, mixed condiments and seasonings, mineral water, footwear costing more than INR 500, camera, speakers, monitors, printers, electrical transformer, optical fiber, tissues, sanitary napkins, notebooks, steel products, headgear and its parts, aluminum foil, bamboo furniture, AC restaurants that serve liquor, restaurants in five-star and luxury hotels, telecom services, IT services, branded garments and financial services and so on attract an 18% GST.

28% GST Rate Slab

19% of goods and services fall under this category. The rest of edibles like chewing gum, bidi, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, personal care items like deodorants, shaving creams, aftershave, hair shampoo, dye, sunscreen, paint, water heater, dishwasher, weighing machine, washing machine, vacuum cleaner, automobiles, motorcycles, 5-star hotel stays, race club betting, private lottery and movie tickets above INR 100 etc. have been clubbed together under the 28% GST slab.

Some other items that will get costlier also include:

• Courier services, mobile phone tariffs, Mobile bills, tuition fees, salon visits, insurance premiums, banking charges, broadband services will get costlier by 3%. These were earlier charged a 15% service tax, and will now fall under 18% tax slab.

• Taxes on aerated drinks, tobacco and luxury goods will now come under the 28 per cent tax bracket under GST, so it will get costlier.

• Real Estate will also get expensive as it will now attract a GST of 12% as opposed to 6%.