A zero tax on daily necessities and a lower rate of 5% for items of mass consumption will make the new Goods and Services Tax regime, to be rolled out from April next year, less regressive, tax experts said.
The four rate structure of 5%, 12%, 18% and 28% is on expected lines, they said.
While the goods will have a multiple rate structure, no clarity is provided on rates applicable to services, said Prashant Deshpande of Deloitte Haskins & Sells. “Hopefully there will be a single rate structure.”
Sandeep Chilana of Shardul Amarchand Mangaldas said while the present approach is a departure from international practice of single GST rate, this collaborative and consultative approach should successfully address the peculiar social, political and economic complexities in India.
Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP, said though zero rating of necessities was a welcome step, the actual benefit to consumers would depend on the items included in this category.
“Limiting the zero rating to food grains or agri products may not lead to any significant reduction on tax costs for the consumers,” he said. “Lower rate of 5% for items of mass consumption along with zero rated tax structure for essential commodities would make GST less regressive and pocket-friendly for common man.”
“The inflationary impact on standard rated commodities should be minimal but services may become dearer by getting pushed to 18% slab,” he said.
ClearTax.com CEO & founder Archit Gupta said a lower rate could result in wider coverage which is the primary objective of GST.
Krishan Arora of Grant Thornton India said while the consensus on rate structure among the Centre and the states seems to be a step closer towards timely implementation of GST, the essence of the multiple split tax rates will need to pass the test of industry acceptance on grounds of revenue neutrality and zero cascading across sectors specially goods falling in the 28% bracket.
Meanwhile, India Inc today suggested the government to gradually come down to “one or two” rates of the GST.
“GST rates structure can be absolute limit of four rates as suggested by the government, and over time, the Government should commit to converge to one or two rates,” CII said.
“It is also important that the bulk of goods and services should fall within the standard rate of 18% and only as exception to go to the higher rate of 28% and a lower rate for essential goods such as unprocessed food items,” CII president Naushad Forbes said.
FICCI complimented the GST Council for reaching a consensus and finalising the four-tier rate structure.
“The rate structure will achieve the twin objective of protecting the revenues of the Central and the state governments and further containing the inflationary pressures that may arise consequent upon the change of the taxation system,” FICCI President Harshavardhan Neotia said.
The Confederation of All India Traders (CAIT) demanded that irrespective of rates, there should be one single return and single authority to control the taxation system and only then the tax net will be widen and revenue will be increased.
The CII suggested that the cess needs to be levied only at the final product and total tax, including cess on demerit goods, should be kept within the present overall indirect tax incidence.