Hinting at further pruning of the list of items in the peak 28 per cent GST slab, Prime Minister Narendra Modi said Tuesday his government wants to ensure that “99 per cent” items are taxed at 18 per cent or below.
Ahead of the GST Council meeting Saturday, Modi indicated that the 28 per cent slab will be restricted to just a few items, and that only 0.5 or 1 per cent of the total 1,200-odd items will continue to remain in the peak slab, comprising essentially luxury items such as big cars, aircraft and demerit goods such as cigarettes.
“Today, we are reaching the situation where 99 per cent of the things can be brought under 18 per cent or less tax. And we are moving in that direction. After that, half a per cent or one per cent luxury items will probably be left out of 18 per cent, including airplane purchases, buying a big car, alcohol, cigarettes and some things, which will not even be one per cent (of items),” Modi said at an event organised by Republic TV in Mumbai.
The government was of the view that further simplification of GST can be done, the Prime Minister said.
A look at the distribution of items at present under the five broad GST categories — 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent — shows that only around 3 per cent or 37 categories of items of the total 1,211 items are in the topmost slab. Around 97 per cent of the total items are already taxed at 18 per cent or below under GST.
Betting on lower taxes in poll year
A cut in GST rates on consumer items and those used in the construction sector will leave only luxury and demerit goods in the peak tax bracket. As things stand, only 37 categories of items out of the total 1,211 items figure in the topmost slab, with around 97% of the total items already out. Further rationalisation entails a toss-up between the potential revenue loss on one side and the possible political and economic gains due to higher growth in a poll year.
According to sources, of the 37 items in the 28 per cent slab, items such as cement, television screens above 68 cm, some types of rubber tyres, and digital cameras, could see a rate reduction from 28 per cent. Items such as paan masala, aerated beverages, automobiles, revolvers and pistols, yachts for pleasure or sports, aircraft for personal use are expected to stay in the 28 per cent slab. Movie tickets priced over Rs 100, currently taxed at 28 per cent, could also see a rate reduction. States may also consider providing relief on their portion, the state GST.
A reduction in the number of items in the 28 per cent slab will imply a significant dent on GST collections. If the Council concedes to the demand of rate cut on cement, it would translate into a revenue loss of about Rs 3,500 crore in the remaining three months of this fiscal. The annual cost of bringing cement in the 18 per cent slab is Rs 14,000 crore as per official estimates.
At the time of fitment of goods and services in the various GST slabs May last year, the government had said that about 81 per cent of the total 1,211 items were taxed at 18 per cent and below. The detailed break-up of the 1,211 items was: 7 per cent items were exempt, 14 per cent items in the 5 per cent tax slab, 17 per cent items in the 12 per cent tax slab, 43 per cent items in the 18 per cent tax slab, and just 19 per cent items in the 28 per cent tax slab.
Since the rollout of GST from July 1 last year, the GST Council has undertaken four rounds of rate rationalisation — October 6, November 10, January 18 and July 21. The first significant rationalisation of the 28 per cent slab was undertaken in November last year by bringing about 178 items such as chocolates, chewing gums, detergents, shampoos, hair creams, fans, pumps, lamps, sanitary ware, wires, cables to the 18 per cent slab, leaving only 50 items in the highest tax category. This exercise was estimated to cost the exchequer about Rs 20,000 crore a year.
In January, the GST Council approved rate cuts and clarifications for about 29 goods and 54 categories of services, estimated to cost Rs 1,000-1,200 crore a year. The recent round of rate cuts on July 21 removed another 15 items such as washing machines, refrigerators, small screen televisions from the 28 per cent slab, an exercise expected to cost Rs 12,000-15,000 crore.
Finance ministers of Opposition-ruled states, however, raised apprehensions about the proposed rate cuts. Kerala’s Finance Minister Thomas Isaac said there should be a considered view on rate cuts and states need to be duly informed about it. “Proper process needs to be followed. The proposal for rate cut should go to fitment committee and information should be given to states about the related revenue loss. Even last time the rate cut for 28 per cent slab was not listed in the meeting agenda. There should not be a knee-jerk reaction based on election results and there needs to be a considered view on rate cuts,” Isaac told The Indian Express.
The tax incidence on items in 28 per cent slab was 35-40 per cent in pre-GST period and now, it’s being proposed to be reduced further, Isaac said, adding that he will raise the issue at the Council meeting.
Modi also said that the Insolvency and Bankruptcy Code has helped in getting hold of big companies which would often walk away under the cover of losses without having to repay their loans to banks or lenders. In a short span of one and half years, Rs 3 lakh crore has been recovered, he said.
“Often in the past, big companies enjoyed political patronage and immunity, enabling them to walk away without repaying the massive loans which often would run into several thousand crores. Now, nobody can abscond or hide in any corner of the world,” he said.