The rate cut assumes significance as it is one of the biggest changes in the GST slabs ahead of the 2019 general elections
The GST Council, headed by Finance Minister Arun Jaitley, on Saturday slashed rates on 17 goods and six services, such as televisions, movie tickets, video games, among others, restricting only 27 items in the highest tax slab of 28 percent. New rates will be applicable from January 1, 2019.
Apart from reducing rates, the Council also rationalized and made clarifications related to certain goods, a move that is expected to boost consumption. Essentially, the 28 percent slab will mainly consist of demerit goods such as aerated drinks, tobacco products and automobile and auto parts, generally considered as luxury goods.
“The 28 percent (tax) bracket is moving towards a sunset,” Jaitley said.
Apart from demerit and luxury goods,the Council, the highest decision-making body under the new indirect tax regime, kept rates on cement, dishwashers and air conditioners unchanged.
Cement continued to remain in the highest tax slab despite being an item of common use as the government garners as much as Rs 13,000 crore from that commodity. Similarly, cutting rates on auto parts would cost the exchequer Rs 20,000 crore loss, Jaitley explained.
This was the fifth round of rate cut and rationalisation exercise since the implementation of GST from July 1, 2017. In the last one and half years, the council has significantly pruned the list of 226 items placed in the highest tax slab of 28 percent, demonstrating the Centre and states’ growing confidence in the new system that seeks to unify India into one common national market.
The revenue impact of the rate rationalisation exercise will be Rs 5,500 crore annually and Rs 1,375 crore for the remaining three months of the financial year 2018-19.
The move comes after Prime Minister Narendra Modi promised bringing most goods under the 18 percent or lower GST slab. "Today, the GST system has been established to a large extent and we are working towards a position where 99 percent things will attract the sub-18 percent GST slab," Modi had said earlier during the week, while hinting that the highest tax slab (28 percent) will be restricted to luxury and sin goods.
The council will now meet in January next year.
The rate cut assumes significance as it is one of the biggest changes in the GST slabs ahead of the 2019 general elections. The government effectively wants to set 18 percent as the highest GST tax slab, except only two broad categories of goods and services.
Among other items in the 28 percent, retreaded tyres, sporting equipment, movie tickets, billiards and snookers and lithium battery power banks will attract 18 percent GST. Wheelchair accessories too have been proposed to be brought under the 5 percent bracket from 28 percent.
The GST rate on third-party insurance premium of goods carrying vehicles will be 12 percent now, while services supplied by banks to Basic Saving Bank Deposit (BSBD) account holders under Pradhan Mantri Jan Dhan Yojana (PMJDY) will now be exempted.
Air travel of pilgrims by charter operations facilitated by the government under bilateral arrangements will now attract the same rate of GST as applicable to similar flights in economy class — 5 percent tax with availability of input tax credit.
Besides, the council also recommended reducing GST on solar power generating plants and renewable energy items. GST rate on movie tickets above Rs 100 was reduced to 18 percent from 28 percent and on tickets upto Rs 100 from to 12 percent from 18 percent.
The recommendations of the GST Council’s fitment committee on rate rationalisation and balancing revenue flows were considered during the meeting, Jaitley said.
The rate cuts now are an overhang on the GST revenues which are still short of budgeted target of over 12 lakh crore for 2018-19. This can be achieved if the average monthly mop up is around Rs 1 lakh crore. In the last eight months, tax mop-up has crossed Rs 1 lakh crore twice — in April and October. Revenue collection from GST declined to Rs 97,637 crore in November from Rs 1 lakh crore in October.
The council also decided to form a seven-member group of ministers (GoM) to study the revenue trend, including analyzing the reasons for structural patterns affecting revenue collection in some states.
“The study would include the underlying reasons for deviation from the revenue collection targets vis-a-vis original assumptions discussed during the design of GST system, its implementation and related structural issues,” the finance ministry said in a statement.
The panel will be assisted by the committee of experts from the Centre, states and National Institute of Public Finance and Planning (NIPFP). The organisation will study and submit its report to the GoM, which in turn will give its recommendation to the Council.
In the current financial year, only six states — Mizoram, Arunachal Pradesh, Manipur, Nagaland, Sikkim and Andhra Pradesh — gave higher-than-anticipated revenue, while West Bengal, Tamil Nadu, Assam, Telangana, Maharashtra and Uttar Pradesh are also close to their revenue target.
Nine states, including Madhya Pradesh, Odisha, Meghalaya, Jharkhand, among others have shown improvement in revenue in the last two years, but continues to face revenue shortfall and will require compensation from the Centre. On the other hand, states such as Puducherry, Himachal Pradesh, Punjab and Uttarakhand haven’t shown improvement in tax collection.
Last year, the Centre had released Rs 48,000 crore to the states as GST compensation to make up for any loss in revenue that states had to undergo due to subsuming of taxes into GST. In 2018-19, the government has transferred Rs 30,000 crore as compensation during April-September.
Jaitley said revenue collection has been higher in case of manufacturing, and tepid in case of services. Competition in telecom, aviation, real estate sector and small service providers are the main reasons for lower revenue from services.
At the next meeting in January, the Council will also look at the report submitted by respective GoMs on the nature and shape of calamity tax proposed and threshold limit of exemption under GST for the MSME sector.
It will also look at the issue of extending composition scheme — a scheme to benefit small taxpayers by providing concessional GST without ITC benefits — to small service providers.
The rate of tax and threshold limit will be proposed by the law and fitment committee and will be taken up for discussion in the next meeting. In addition, tax rate on lotteries, and taxation of residential properties in the real estate sector will also be looked at by the law and fitment committee.
Creation of a centralised Appellate Authority for Advance Ruling (AAAR) to deal with cases of conflicting decisions by two or more state appellate advance ruling authorities on the same issue has been approved.
The Council approved amendment in section 50 of Central GST (CGST) Act ‘to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger.
Revenue secretary Ajay Bhushan Pandey said the new return filing system will be introduced on a trial basis from April 1,2019 and made mandatory from July 1 next year.
The Council also extended the last date for filing annual return forms for 2017-18 by another three months to June 30.
“There would be a single cash ledger for each tax head. The modalities for implementation would be finalised in consultation with IT backbone GST Network and the accounting authorities,” a finance ministry statement said.
“A scheme of single authority for disbursement of the refund amount sanctioned by either the Centre or the state tax authorities would be implemented on pilot basis. The modalities for the same shall be finalized shortly,” it said.
Filing returns via summary form GSTR-3B and outward supplies for GSTR-1 during July, 2017 to February, 2019 have been extended till March 31, 2019 and late fees have also been waived for all taxpayers filing return through GSTR-1, GSTR-3B and GSTR-4 from July, 2017 to September, 2018, filed after December 22 but on or before March, next year.In addition, taxpayers who have not filed the returns for two consecutive tax periods shall be restricted from generating e-way bills.