MAINTAINING status quo on most exempted services, the Goods and Services Tax (GST) Council on Friday moved towards a multi-tiered service tax structure to distribute services under four slabs — 5, 12, 18 and 28 per cent — as against the single rate of 15 per cent levied on all taxable services currently.
While education, healthcare and non-AC rail travel will continue to remain exempted under the proposed indirect tax regime, luxury hotels, gambling, race club betting and cinema services will attract a levy of 28 per cent.
Revenue Secretary Hasmukh Adhia, however, said that states have the option to levy extra taxes on cinema to compensate for revenue losses due to merging of entertainment tax with GST.
The total tax incidence on cinema, including entertainment tax and service tax, is currently in the range of around 55 per cent. If a state wants to levy additional tax on cinema, they will have to use the legislative route to enable local bodies to charge the tax and utilise the revenue, Adhia told reporters after the second day of the 14th GST Council meeting.
Also, he said, states have the freedom to levy any new tax since the taxation powers of states have been restricted, not abolished, after the rollout of GST.
Taxation rates for about 500 services were discussed on the final day of the meeting. Telecom and financial services will be taxed at a standard rate of 18 per cent, while transport services will be taxed at 5 per cent.
Cab aggregators like Ola and Uber, who currently have to pay 6 per cent tax, will also be charged 5 per cent under GST.
The GST Council has also decided on a 1 per cent Tax Collected at Source (TCS) rate for e-commerce players such as Flipkart, Snapdeal, even though the law provides for a levy for 2 per cent tax rate, Adhia said.
AC rail travel will attract 5 per cent tax, although input tax credit will be provided. Economy class air travel will attract 5 per cent GST while business class will be charged 12 cent, Adhia said. Travelling on metro, local train and religious travel, including Haj yatra, will continue to be exempt from GST, he said.
Non-AC restaurants will attract a GST of 12 per cent, while the rate for AC restaurants and those with liquor licences will be 18 per cent, Finance Minister Arun Jaitley said.
Restaurants with a turnover of Rs 50 lakh or below can go for 5 per cent composition, he said. Work contracts, such as whitewashing, will be liable for a 12 per cent GST.
Hotels and lodges charging per day tariff of Rs 1000 will be exempt from GST. The rate for hotels with tariff of Rs 1,000-2,000 per day would be 12 per cent while those with tariff of Rs 2,500 to Rs 5,000 would be 18 per cent. GST for hotels with tariff above Rs 5,000 would be 28 per cent.
Advertisements placed in newspapers will attract a 5 per cent GST. This is, at present, exempt from service tax.
Jaitley said the net effect of GST will not be inflationary. “We made sure that the consumers don’t have to pay more. The net effect of goods and services is not going to be inflationary because, once the system of input credits starts the actual incidence is going to be positively impacted,” he said.
The next meeting of GST Council is scheduled to be held on June 3, when tax on gold and precious metals will be taken up for discussion. Also, no tax has been decided for lottery and is likely to be discussed along with pending two rules of transition provision and returns in the next meeting.
“A new concept of luxury services has been introduced under GST, which is based on the fact that such services can suffer higher tax rate. Also, multi-tier rate for services has been considered in line with that of goods. Though the thinking behind this may have a rationale, the fact that now one would have to deal with classification issues is an area of concern,” said Anita Rastogi, Partner, Indirect Tax, PwC India.