Rate Tweaks To Make Up For Inefficiencies, In Value Chain; States Conscious Of Inflation Impact: FM

Finance Minister Nirmala Sitharaman on Wednesday said any increase in 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, Sitharaman 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. "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 told reporters after the 47th Council meeting here. As per an RBI study, the weighted average tax rate under the Goods and Services Tax (GST) has come down to 11.6 per cent, from 14.4 per cent at the time of the launch. The revenue-neutral rate under GST should be about 15.5 per cent, as per the Subramanian Committee report, which was submitted before the GST launch.

Sitharaman said huge refunds are being given out due to duty inversion in certain cases and that needs to be corrected. "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," she said.

So, rate rationalisation is something the Group of ministers (GoM) is looking at from this point of view also, Sitharaman said. 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 here 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.

Asked about the potential impact of rate increases on inflation, Sitharaman said inflation is not any one particular state's concern. "All ministers (in Council) are aware. They are all looking at the system keeping that in mind. So, decisions taken by the council are not as though are being taken in isolation. Elected representatives who are part of the GST council are fully conscious ...," she said. "There was no opposition to the rate increase from any state," Sitharaman said. The panel in its interim report, now approved by the council, 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 five per cent 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.

(PTI)