GST rates tweak to make up for ‘inefficiencies’ in value chain: Nirmala Sitharaman

Finance Minister Nirmala Sitharaman has said any increase in Goods and Services Tax (GST) rates under the rate rationalisation exercise is intended to make up for the ‘inefficiencies’ in the value chain. Stating that all states are aware of the potential impact of rate rationalisation on inflation, she said any increase in tax rates will also make up for the tax burden, which is being borne by some other activities in that value chain. She said ‘Technology may correct anomalies for inefficiencies and therefore may have a possible impact on revenue collection. But the revenue-neutral rate of the RBI study has been breached to the disadvantage of the system… That calls for a correction…’.

Sitharaman said huge refunds are being given out due to duty inversion in certain cases and that needs to be corrected. She said ‘As a result of which again you are sitting over potential tax yielding points, which have been left out. That’s not the efficiency of the system. So, rate rationalisation, if it results in an increase, is also making up for…the kind of inefficiencies, which have appeared now or the collateral which is being borne by some other activities in that value chain’. So, she said rate rationalisation is something the Group of ministers (GoM) is looking at from this point of view also. Inefficiencies in the taxation system creep in when inputs and final products are taxed at varying rates, leading to either tax evasion or business entities not being able to fully utilise the input tax credit fully.

The GST Council, chaired by Union Finance Minister and comprising state finance ministers, in the 47th meeting approved the interim report of the GoM on rate rationalisation, headed by Karnataka Chief Minister Basavaraj Bommai. The council also gave a 3-month extension to the panel for submitting a full report on rate rationalisation and potential tax slab merger under the GST. The panel in its interim report has suggested removing the GST exemption on a host of items and also correcting duty inversion in some cases. The changes will be implemented from July 18. So, pre-packed and labelled meat, except frozen, fish, curd, paneer, honey, dried leguminous vegetables, dried makhana, wheat and other cereals, wheat or meslin flour, jaggery, puffed rice (muri), all goods and organic manure and coir pith compost will not be exempted from GST and will attract a 5% tax from July 18. Similarly, 18 per cent GST will be levied on the fee charged by banks for the issue of cheques (lose or in book form). Maps and charts, including atlases, will attract a 12 per cent levy, while goods that are unpacked, unlabelled and unbranded will continue to remain exempted from the GST.

Besides, 12 per cent tax on hotel rooms below Rs 1,000/day will be levied against tax exemption currently. Also, inverted duty for a host of items, including edible oil, coal, LED lamps, printing/drawing ink, finished leather and solar water heater too would be corrected. The council also approved the report of the fitment committee, comprising officers of central and state governments, to tweak tax rates in some items. Tax rates for orthopaedic implants (Trauma, Spine, and Arthroplasty Implants in body); Orthoses (Splints, braces, belts & callipers); Prostheses (artificial limbs) will be cut to a uniform five per cent, from the current differential rate of 12 and 5 per cent. The Committee also recommended a reduction in the GST on ropeway travel from 18 per cent to 5 per cent and on Ostomy Appliances from 12 per cent to 5 per cent. The GST on tetra pack too would be hiked to 18 per cent from 12 per cent at present.