The decision of the Goods and Services Tax (GST) Council to cut the rate on many items and make several changes to the laws and procedures has been widely welcomed, though some of its members have expressed dissatisfaction with its decision making process.
The Council has reduced the rate on 88 items, including footwear, refrigerators, washing machines and small screen TVs. The highest tax bracket of 28 per cent has been rationalised further, with that on daily-use items like perfumes, cosmetics, toiletries, hair dryers, shavers, mixer-grinders, vacuum cleaners and lithium ion batteries, being lowered to 18 per cent. Only 35 items remain in the 28 per cent rate. Sanitary napkins have been fully exempt from the levy. The revised rates took effect from Friday.
Clearly, the Council is moving towards a three-tier structure of five, 12 and 18 per cent, though it could be a while before all items come into these slabs. The impact of bringing down the rates on many items will be lower prices; this might boost demand and help revive the economy, generating more jobs. The increased demand due to lower taxes might help bring in more revenue.
On changes in laws and procedures, most of the Council’s recommendations were expected, the draft of the proposals being already in the public domain. The pleasant surprise was allowing dealers with annual turnover up to Rs 50 million to file quarterly returns, though they will have to discharge the tax liability every month. This might delay matching of invoices by the trade but the overall compliance burden will be eased for about 90 per cent of payers. GST Network, the technology platform for dealing with the returns, will also be able to cope with the load better.
The hotel sector got major relief, in that the rate of tax on accommodation services shall be based on transaction value, not the declared price. This sensible decision gives primacy to transaction value that takes into account the discounts given on regular prices. Services provided in banking and information technology have been provided relief by exempting those supplied by an establishment of a person in India to any establishment of that person outside India [related party transactions].
Concerns of importers and exporters have been addressed by providing specific exemptions to supply of goods from one place to another in non-taxable territory, without such goods entering India (referred to as merchanting trade or third-country export), supply of warehoused goods to any person before clearance for home consumption (thus avoiding double taxation on the same imported goods) and supply of goods in the case of high sea sales. Supply of services will qualify as export, even if payment is received in rupees, where permitted by the Reserve Bank of India. Presently, these exemptions or dispensations operate through departmental clarifications.
The monthly return approved by the Council is simple, with two main tables. One is for reporting of outward supplies and the other for availing of input tax credit, based on invoices uploaded by the supplier. Suppliers may upload invoices on a continuous basis and these can be viewed and locked by buyers for availing of input tax credit.