Uncertainty on rates for gold is not warranted as gold is a key determinant of the rate structure, said Prashant Deshpande, Partner, Deloitte Haskins & Sells LLP, while commenting on the 4-tier indirect tax structure announced by the GST Council today. He further said:

“The four rate structure is on expected lines.The increase in maximum marginal rates to 28 per cent coupled with the announcement that it will attract to items which are currently taxed at rates in that range would mean that rate as a criteria would cease to play a role in evaluating benefits from GST for such products.Giving a sunset period for cess to be levied on luxury cars, tobacco and aerated beverages gives a certainty that is required for business decisions.”

Overall tax impact on 12% and 18% goods same but services may become more expensive

“Standard rate of 12 and 18 percent for most of the items and services keeps the overall tax incidence below or around the existing tax costs. The inflationary impact on standard rated commodities should be minimal but services may become dearer by getting pushed to 18 percent slab.” says Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP.

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Tax impact on goods in 28% slab likely to be higher than at present

He further said: ” 28 percent tax slab on items presently facing 30 to 31 percent tax (including Excise and VAT) would need to be watched out for categories getting fitted in there. This might increase the tax burden for certain items since GST would create a higher tax incidence as it applies on final stage in comparison to Excise duty which applies at intermediate stage of manufacturing. Critical to watch out for the list of commodities to be taxed at the highest slab of 28 percent as commodities covered in this bracket are likely to face a higher tax incidence than that under the current regime”.

“From the perspective of overall tax incidence, levy of cess on luxury items and demerit goods should be acceptable to the industry as these goods face a similar tax burden presently. However, dealing with another tier of tax would be administratively difficult to handle, specifically given the short timeframe that the India Inc has in hand for setting up GST enabled systems. Also modalities around levy of cess, viz point of levy, credit eligibility etc will be critical aspects to watch out for.”

Common man to benefit

In lowering the rate on common use items from expected 6 per cent to revised rate of 5 per cent, the interests of common man seem to have played a key role, he said. It would be interesting to know what the Government deems as common use items, Deloitte’s Deshpande added.

It is now essential that the categorisation of goods in these (new) slabs is accomplished quickly. It is also necessary to ensure that majority of manufactured products are kept at 18 % and the temptation to push more products into the 28% slab should be resisted, said M. S. Mani, Senior Director, Deloitte Haskins & Sells LLP . The classification of goods into the four rate slabs should be done very carefully ensuring that 5% , 12 % and 18% are applied in a fair manner without much scope for arbitrage across slabs, he added.

But zero rating for food grains may not cut tax cost much

However, limiting the zero rating to food grains or agri products may not lead to any significant reduction on tax costs for the consumers, says BMR’s Dimri. Zero rating of necessities is surely a welcome news, though the actual benefit to consumer will depend on the items included in this category, he added. Lower rate of 5 percent for the items included in this category, he added. Lower rate of 5 percent for items of mass consumption along with zero rated tax structure for essential commodities would make GST less regressive and pocket friendly for common man, he said. He further said:

“Much to the rejoice of the consumer and industry, tax costs might even go down for commodities to be taxed at 5 percent provided the credits on procurements are fully allowed.While the lists are yet to be rolled out by the GST Council, all essential commodities and services, including education and health care should feature in the list of special concessional rate of 5 percent (if not zero rated),”Dimri adds.

Rate-wise product classification important as earlier ‘luxuries’ are now ‘necessities’

Deloitte’s Mani further added: “A four rate slab is a good beginning and a lot of focus would now go to the product classification in these slabs . In addition to revenue neutrality that was mentioned as the guiding principle, a proper fitment of products considering present usage patterns would be essential. This is due to the fact that products viewed as non essentials or luxury in the past are in many cases viewed as necessities now”.

Levy of Cess a distortion of the GST scheme

Commenting on the new rates, Anita Rastogi, Partner Indirect Tax, PwC India, said “It is good that the centre and states have agreed on tax structure for the GST regime. The rate of 28% was a surprise. The levy of Cess could have been avoided as it is a clear distortion to the GST scheme. Now the next critical step is the classification of goods under each of the tax rate”

Rajeev Dimri of BMR agrees: “Levy of Compensation Cess on certain luxury and sin goods in addition to tax takes GST is taking a step backward from a true GST structure. Though proposed for initial five years, this would transit the complexities of existing tax regime to GST which could have been easily avoided.”

Source: The Economic Times