The Central Board of Indirect Taxes and Customs (CBIC) is conducting a series of meetings with key industry players this week to ensure that the reduction in goods and services tax (GST) rates is passed on to consumers, multiple sources told Moneycontrol.
In the coming days, the CBIC will hold meetings with representatives from three major sectors -- hospitality, insurance and textiles, along with others to ensure retail prices are adjusted in accordance to lower GST rates from September 22.
"The government is nudging industry for passing rate cuts benefits. We are hearing them too, to see if they require any support," one official said.
While the GST Council on September 3 approved slashing tax rates on hotel rooms priced at Rs 7,500 or less per night to 5 percent (without input tax credit, or ITC), from 12 percent with ITC, it has exempted health and life insurance premiums from the levy.
And, as for textiles, the GST rate on readymade garments will be slashed to 5 percent from 12 percent for items up to Rs 2,500. Man-made fibres and yarns too will face a uniform and lower rate of 5 percent along with handloom, handicraft items and carpets.
“The idea is to ensure that associations can help companies with the implementation of the new GST rates as well as educate small manufacturers about the benefits of the rate cuts. All of this is to ascertain that consumers can enjoy the benefits of the new rates,” a second source said.
The meetings come in the wake of mixed reviews from certain sectors around the relief offered through GST reforms given the removal of input tax credit under the new rates.
Experts from both the hospitality and the insurance sectors have cautioned that unless the companies are allowed to retain input tax credits, the actual benefit for consumers may not be proportional to the reduction in GST rates.
Even car dealers are facing challenges around implementing the new rates given the absence of input tax credit.
Moneycontrol reported on September 9 that the government is deliberating on whether a mechanism should be introduced through which blocked "compensation cess credits" could be refunded to car dealers, who have a large inventory of automobiles purchased at older GST rates from the manufacturer.
To be sure, from September 22nd, mid and small sized cars would attract a GST of 40 percent, which is lower than the 45-50 percent tax incidence (28 percent GST, plus 17-22 percent cess) applicable at present.
Last week, Finance Minister Nirmala Sitharaman told Network 18 in an interview: "Many citizens have raised this issue (of passing GST cuts benefits to citizens). We will have to keep talking with industry, we’ll have to nudge them."
The GST Council approved the overhaul of the indirect tax system by modifying the structure into a ‘Simple Tax’ with a standard rate of 18 percent and a merit rate of 5 percent. A special de-merit rate of 40 percent will be levied for a select few goods and services.
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