GST Council meet: Pruning exemptions on curd, paneer, some veggies on cards

Exemptions may also be withdrawn on certain services such as business class flights from NE airports and certain hospital room categories

The all-powerful GST Council is set to take up an interim report by a high-level ministerial panel on rate rationalisation, suggesting hiking rates on a slew of items such as leather goods, printing ink and LED lights to 18 per cent and removing exemptions given to mass products like curd, paneer, puffed rice, oats and millets.

The ministerial panel led by Karnataka Chief Minister Basavaraj S Bommai is likely to table its report to the Council this week, and may also seek three months' time to submit its final report on restructuring of the current GST slabs.

The report has outlined pruning exemptions on 15 items such as lassi, butter milk, pappad, certain foodgrain (oats, millets, bajra), jaggery, and certain vegetables, according to people privy to the interim report.

Explaining the rationale, the panel argued that such exemptions, due to the subjective nature of the term ‘branded’, were causing disputes and revenue leakage, and had been amended multiple times as the complex entry indicates.

The panel noticed that in certain states, revenues from these items have fallen significantly as compared to the pre-GST regime, given that the scope of coverage has narrowed in GST.

It was of the view that the condition of exclusion for such exemptions may be simplified by replacing the term ‘branded’ with the deterministic condition of being ‘pre-packaged and labelled’ for retail sale. It was also felt that pre-packed and labelled items like curd, lassi, puffed rice [these are usually produced by large manufacturers] should attract nominal GST.

Such GST on pre-packed and labelled specified item would in fact provide a level playing field to MSME units whose product would continue to get GST exemptions.

The panel also felt that exemption/concessional rates on manufactured items needs to be pruned as these not only cause inversion in GST rates and impact domestic capacity creation adversely but also do not provide significant gains to recipient on account of cost built up considering ITC accumulation.

Withdrawing exemptions

The panel also recommended withdrawing exemption on certain services such as transport of passengers in business class from airports in NE states; registration/licencing supplied by FSSAI to food business operators; and hotel accommodation costing under Rs 1,000 per unit/day, which will be taxed on a par with industry (12 per cent). Hospital rooms, except ICU, with daily rent of Rs 5,000 could be taxed at 5 per cent without ITC.

“Hospital rooms at the given rent are meant only for persons who can afford them, and such rooms are generally AC, (and are) provided by large hospitals. Therefore, a nominal GST of 5 per cent could apply on such room rent. Such a nominal tax on higher room rents would not impact health services and would have no impact whatsoever on the common man. Similarly, cord blood bank for stem cells is a service meant for a class that can afford paying taxes," the panel report said. "Services by way of training or coaching in recreational activities when provided by commercial large entities should be subject to tax as even other common supplies attract GST. Such services provided by individuals, irrespective of turnover, or entities below threshold would continue to exempt."

The panel’s interim report suggested correction of inverted duty structure by disallowing input tax credit refunds given to edible oil and coal.

The panel is of view that inverted duty refunds may be anticipated on items having principal inputs at higher rate than finished products, as in the case of fertilisers and tractors, but not envisaged in items like edible oil and coal, according to people privy to the report.

It was also unanimously agreed that the rate on services supplied by the foreman to a chit fund may be increased to 18 per cent from the existing 12 per cent.