The last lap
With the legislative groundwork for the transition to the Goods and Services Tax regime largely wrapped up, the GST Council’s 14th round deliberations in Srinagar over the last two days were focused on the most contentious non-legislative agenda items — the approval of the GST rules, the fitment of over 1,200 commodities into the five pre-announced tax slabs and the tax rates on services. On Friday, the second day of the meeting, the Council decided to tax services under four slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent. The culmination of the two-day meeting — where the Council cleared seven of the nine draft rules, approved the fitment of 1,211 items into the designated tax slabs and also cleared the service tax rates — marks a resounding success for Centre-state deliberations and takes the GST implementation into its last lap. The draft rules, alongside clarity on tax rates, are crucial for India Inc. to realign its existing processes and reporting mechanisms to the requirements of the new regime. The release of the tax rates in the public domain has happened 40 days before July 1, the day the GST regime kicks in.
This is much better than the 14 days notice expected earlier.
The biggest takeaway, though, is that despite pulls and pressures from disparate lobbies and the wrangling generally witnessed among states, the Council has managed to achieve an agreement on clubbing the bulk of the items into the two standard rates of 12 per cent and 18 per cent. To its credit, the Council has also substantially pruned the list of exemptions, with only seven per cent of total items indicated to be kept nil-rated. As expected, foodgrain and milk have been exempted from the GST while mostly essential consumer products, such as edible oil, sugar and tea, are bracketed under 5 per cent. Notably, items constituting 52 per cent weight in the consumer price index remain exempt even now. Nevertheless, the low GST rates on daily items consumed by households lend credence to Finance Minister Arun Jaitley’s assertion that the new regime will be non-inflationary and that many commodities could see a reduction in prices due to the elimination of the cascading effect of taxes.
Having come under fire earlier for having too many tax slabs, which is essentially seen as a distortion of the original single-rate GST structure, the big success of the two-day meeting pertains to the overall macro picture — that the two standard rates of 12 and 18 per cent account for 60 per cent of all items and only around 19 per cent of the items have been pushed into the higher rate of 28 per cent and beyond (including the cesses). Within services, health and education and most others that are exempted now will remain so. India Inc. can finally gear up for the transition to what is being called the biggest tax reform since Independence.