GST Council Sticked to the 18% Tax Rate for Majority of Items

With a gradual and constant progression towards making Goods and Services Tax (GST) live by July 1, the GST Council decided the tax rates for 1,211 items, a majority kept at 18 percent, though the rates on gold and beedi remained undecided. So it is likely that the prices of most of the items will come down post GST Implementation.

"There is no increase in taxes of the items which were considered and discussed today at GST Council Meeting. In fact, for many of them, taxes have come down," says Arun Jaitley, Union Finance Minister after the first day of the GST Council meet.

The Council did not take any decision on services tax rates. The two-day meeting will take up the exemption of essential services on Friday.

Revenue Secretary Hasmukh Adhia said that an overwhelming 81 percent of items will attract tax of 18 percent or below. Only 19 percent of items will be taxed at the highest rate of 28 percent, he said.

The fitment of only six categories of goods remain to be decided, including gold, beedi and cars.

The Finance Minister said food items, including cereals, will become cheaper as they have been kept under the exempt category to which milk is also proposed to be added.

However, the fitment of packed and branded food is yet to be decided.

Jaitley said the rates on the remaining items will be decided in the Council's meeting on Friday.

"The Council may meet again if final rates are not decided today (Friday)."

Jaitley said that while the overall basket of taxes will see a reduction, he hoped for greater tax buoyancy because of greater efficiency and less tax evasion.

"On many commodities there would be reduction because of the cascading effect, but we are banking on the hope that because of a better tax system and less evasion there would be tax buoyancy," he said.

Items like hair oil, toothpaste and soaps, which are now taxed at 28 percent, will be taxed at 18 percent under GST.

Sugar, tea, coffee (except instant), edible oil and coal will attract 5 percent tax. Coal is currently taxed at 11.69 percent.

Air-conditioners and refrigerators will come under the 28 percent tax slab, while life saving drugs have been kept at 5 percent rate.

In a major measure of support to industry, the rate for capital goods, as well as industrial and intermediate items have been set at 18 percent.

Around 400 items are currently exempt from excise and VAT under the existing indirect tax regime.

With the government announcing that 7 percent of items will remain under the exempt category, the number of items which enjoy zero percent tax will come down drastically.

According to sources, Jaitley asked the states during the meeting to keep exemptions to the bare minimum.

"There cannot be 300 items in the exemption list," he said.

Jaitley also announced that seven rules for GST have been decided while the Council will take up the ones on transition and returns on Friday.

Commenting on the GST Council's deliberations, a senior tax analyst said the rates announced were along expected lines.

"However, it seems a lot of work is yet to be done. Exemptions and issues related to reverse charge mechanism have not been finalised, and looks doubtful that it will be done in a day," said Taxmann.com Senior Consultant V.S Datey.

"Thus the chances of introducing GST by July 1 appears doubtful," he added.