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Increased GST rate on certain household and agricultural items

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States seeking an extension to the guaranteed compensation period could not move forward at the Goods and Services Tax Council meeting that ended on Wednesday, even though the body streamlined rates and scrapped exemptions, measures that experts say would add to the stability of the Goods and Services Tax regime.

Students, housewives, farmers and tourists will have to pay more for some everyday items after the GST Board decided to raise taxes on a host of items including ink, pencil sharpeners, cutlery, LED lamps, electric pumps and dairy products. , machinery for poultry and horticulture.

This decision, which also involves the elimination of certain tax exemptions, aims to iron out the inconsistencies in the structure which have led to the so-called “inversion of rights”, the Minister of Finance said after the council meeting, but the decision – taken collectively by the states and the Center – has been criticized by some opposition parties for its potential to stoke inflation.

A proposal to levy a 28% GST on casinos, online gambling, horse racing and lottery has been postponed, Union Finance Minister Nirmala Sitharaman said on Wednesday after the two-day council meeting.

The council reduced the GST on certain health-related items and on cable car fares used to transport goods and passengers. (Illustration HT)

The increase in levies will be in the range of 1.25 to 13 percentage points and will come into effect on July 18. Experts said the changes bring the GST closer to its originally envisioned structure – few rate brackets and fewer exemptions. The process should boost revenue collections that have exceeded 1.4 lakh crore per month for the past three months.

When the GST was considered, states were promised a guaranteed 14% increase in revenue per year, with the Center making up the shortfall through a tax on luxury and sin goods. It ends on June 30, and while some states have pushed for it, the Center isn’t keen on doing it. Experts argue that a stable revenue-neutral rate (the current revenue-neutral rate is too low) should address states’ concerns and also encourage them to agree to rate increases.

The council also decided to reduce the GST on certain health-related items and on cable car fares used to transport goods and passengers.

Addressing a press conference in Chandigarh, Sitharaman, who is the chairman of the board, said the decisions to correct the duty reversal and withdraw the tax exemption were taken unanimously by all members. on the recommendation of the Group of Ministers (GoM) headed by the Chief Minister of Karnataka. Basavaraj Bommai.

“There was no opposition to an increase or anything to do with tariffs. There was not one…” she told reporters during the presentation of the results of the meeting.

But opposition parties attacked the Union government for raising prices at a time when people were under pressure from high inflation. Even before the end of the Council meeting, Congress leader Rahul Gandhi called the GST a “Grihasthi Sarvanash tax” (household destruction tax).

A central government official, who was at the meeting and asked not to be named, said: “No one, not even the Congress-run states, raised a single voice against the decision at the meeting. “

While prepackaged curds, lassi and buttermilk are set to become more expensive with the introduction of a 5% tax on them, GST on bank checks (until now there was no GST on the issuance of checks, whether in bulk or in book form) were increased from zero to 18%. Students and professionals using maps and hydrographic charts, including atlases, will be charged 12% GST as the council has decided to remove these items from the exemption list. The council also decided to increase the GST on petroleum and coal bed methane from 5% to 12%, and electronic waste from 5% to 18%.

It has, however, decided to reduce the GST on certain health-related items such as ostomy and braces from 12% to 5%, according to an official statement. It also decided to reduce the GST on diethylcarbamazine (DEC) tablets provided free of charge to the National Filariasis Elimination Program from 5% to zero. While the council reduced the tax on freight and passenger transport by cable car from 18% to 5%, it reduced the GST on truck rentals, including the cost of fuel, from 18% to 12%.

The GST Board is the supreme decision-making body on excise taxes represented by the Center and the States, and with the exception of one case related to the lottery tax rate, all its decisions are based on consensus since its creation in July 2017.

The Council also removed several exemptions on services to broaden the tax base. Now, only economy class passengers will be able to enjoy GST-exempt transportation from the northeastern states and Bagdogra.

There will no longer be tax exemptions on the transport of railway equipment, the storage of taxable products (nuts, spices, copra, jaggery, cotton), fumigation in a warehouse of agricultural products, services provided by the institutions financial institutions and regulators such as the Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDA), Securities and Exchange Board of India (Sebi), Food Safety and Standards Authority of India (FSSAI) and the Goods and Services Tax Network (GSTN).

Rental of residential accommodation to commercial entities and services provided by cord blood banks through stem cell storage will also no longer be tax-exempt, according to the official statement.

From July 18, hotel accommodation until 1,000 per day will have no exemption and will attract 12% GST. Similarly, the rent for the room (excluding intensive care) exceeding 5,000 per day per patient charged by a hospital will be taxed up to the amount charged for the room at 5% GST with no input tax credit (ITC), he said. “The tax exemption on education or training in recreational activities related to the arts, culture or sport is limited to such services when provided by an individual,” he added.

According to Sitharaman, Wednesday’s decisions are based on GoM’s recommendations on correcting the reversal of duties and removing exemptions. A third and important GST slab rationalization exercise is planned later, as the board has given the group more time to undertake the exercise.

Abhishek Jain, Partner, Indirect Tax at consultancy KPMG in India, said: “The GST council has granted a few months extension to the GoM to submit its report on the rationalization of the tax slab. Since the current tax neutral rate is lower than the target rate of 15.5%, new GST tax brackets can be expected. »

MS Mani, Partner at Deloitte India, said: “The removal of certain exemptions and the multiple rate changes announced today are part of the overall rate rationalization exercise, as the GST architecture, such as it was initially envisaged, included few rates and very few exemptions. It seems that over a period of time the GST is now moving in that direction. »