GST Council tilts towards rate hikes, drops exemptions for many items

Okays removing the exemption on mass consumption items

The Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, on Tuesday approved in principle hiking the rates for some goods and services and removing exemptions for several mass consumption items to simplify the rate structure, in line with an interim report given by a ministerial panel.

The move is significant because it would aid the states, which have been pressing for either extending the compensation regime beyond June 30 or increasing their share in revenue from the current 50 per cent. The decision, however, would make items costlier for consumers.

The council on Wednesday will take up extending compensation to the states and imposing 28 per cent on casinos, online gaming, and racing, bringing them on a level with gambling, said its two members.

During the meeting, the council approved the interim report of the empowered group of ministers (GoM), headed by Karnataka Chief Minister Basavaraj S Bommai, on rate rationalisation and proposed doing away with exemption for 15 items such as lassi, butter milk, pappad, certain foodgrains (oats, millets, bajra), jaggery, and some vegetables.

Those “unpacked and unlabelled” will stay exempt.

The council is learnt to have favoured the panel’s argument that the exemptions, due to the subjective nature of the term “branded”, were causing disputes and revenue leakages. The council approved replacing the term “branded” with “pre-packaged and labelled” for retail sale to avoid disputes. At present, branded cereals attract 5 per cent GST.

The panel said exemption/concessional rates for manufactured items needed to be pruned because these not only caused an inversion in GST rates and affected domestic capacity creation adversely but also did not provide significant gains to recipients on account of costs built up, considering the accumulation of input tax credit (ITC).

Items to cost more

The council is learnt to have approved increasing the rate for LED lamps, ink, knives, blades, power-driven pumps, and dairy machinery from 12 per cent to 18 per cent; that for milling machinery for cereals from 5 per cent to 18 per cent; and that for solar water heaters and finished leather from 5 per cent to 12 per cent. The rate for work-contract services supplied to governments and local authorities is proposed to be increased to 18 per cent. The council also gave the nod to hike the rate on specified petroleum goods from 5 per cent to 12 per cent.

Withdrawing exemptions

The Council favoured GoM recommendations on withdrawing exemptions for services such as the transport of passengers in business class from airports in the Northeast. Hotel accommodation costing under Rs 1,000 per day will be taxed at par with the industry (12 per cent). Hospital rooms except ICU, with a daily rent of Rs 5,000, could be taxed at 5 per cent without ITC.

It also approved the suggestions on withdrawing exemption on services provided by the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, and Food Safety and Standards Authority of India, and on the storage and warehousing of taxable goods like sugar and natural fibre.

Besides, it disallowed ITC refund on account of an inverted duty structure in edible oils and coal. It wanted post office services other than postcards, inland letters, book post and envelopes weighing less than 10 gm to be taxed.

Also, cheques, loose or in book form, should be taxed at 18 per cent, the GoM has recommended. The GoM favoured withdrawing exemptions given to renting residential dwellings by businesses for residential use.

Other approvals

On e-way bills on intra-state movements of gold, jewellery, and precious stones, the council empowered the states to decide the threshold above which they should be mandatory. A panel of state ministers had recommended the threshold to be Rs 2 lakh. Some states wanted a higher one.

With regard to high-risk taxpayers, the council approved enforcement-led systems reforms suggested by a separate ministerial panel, allowing verification after registration, besides using their electricity bills and bank accounts for identifying them.

The council also approved the industry demand seeking ease of compliance and provided relaxations by waiving the requirement for filing refunds and extending the timeline for filing some returns.

Agenda deferred

The proposal for new margin schemes for tour operators, taxing virtual digital assets, setting up a GST tribunal, ease of compliance for small e-commerce retailers, and tax exemptions on services to panchayats and municipalities has been deferred.