The GST Council has finalised the rates for almost all the commodities, as well as the rates for services. The Council has approved five-tier structural rates — 0, 5, 12, 18 and 28 per cent — for both goods and services.
While the five-tier structure was expected on the goods side, a similar rate structure for services has come as a bit of a surprise. Nevertheless, one message that emerges clearly is that the broad rate structure especially on the goods side, far from being inflationary, may encourage a downward movement in prices.
This combined with already low levels of CPI inflation and strengthening of the rupee provides space for a looser monetary policy regime. Fiscal rectitude now may afford the Reserve Bank of India the luxury to move towards a more accommodative monetary policy and perhaps cut the rates. This will afford considerable relief to the private corporate sector and stimulate private investment.
Interesting decisions
Besides this general message, there are two interesting decisions on the rates which merit elaboration. First of all, the GST council has approved a levy of 5 per cent GST on unmanufactured tobacco in the hands of the purchaser. This is an important measure as it recognises that from the health point of view, all tobacco needs to be treated uniformly for tax purposes without discriminating between product categories. The measure will also bring in discipline in the tobacco auction market and create an audit trail of transactions which will reduce non-compliance in sectors such as bidi, chewing tobacco and cigarettes. It may also bring in much needed revenue to the extent it finds use in the exempted product category.
via So far, the GST Council has got it right | Business Line
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