SRINAGAR:

The goods and services tax (GST), which is set to be rolled out on July 1, is likely to have a benign effect on household budgets with finance minister Arun Jaitley declaring that its impact "will not be inflationary" and in some instances, prices are even likely to drop.

A host of daily consumption items such as milk, fruit and vegetables, jaggery or gur, foodgrain and cereals have been exempted from tax while others such as sugar, tea, coffee, edible oil, mithai, and newsprint have been placed in the lowest slab of 5 per cent .

Luxury cars will attract 28 per cent GST plus a cess of 15 per cent , while small petrol cars will face 28 per cent plus 1 per cent cess, and diesel small cars 28 per cent tax plus 3 per cent cess. Consumer durables, which face a total tax of about 32 per cent now, will be in the 28 per cent slab.

The GST Council, the apex decision-making body for the new tax, took tangible steps toward finalising the tax framework on day one of its two-day meeting in Srinagar.

 
"Tax incidence on none of the commodities will go up and in fact there is a reduction in case of many as tax on tax has gone," Jaitley, who is also the council chairman, told reporters on Thursday.

"In case of some goods we have deliberately brought down tax. A number of items that faced 30-31 per cent tax now have been placed in the 28 per cent and 18 per cent slabs." Revenue secretary Hasmukh Adhia said 81 per cent of the goods will attract tax equal to or lower than 18 per cent . "Of the 1,211 items at the four digit harmonised system of nomenclature, 7 per cent have been exempted, 14 per cent will attract 5 per cent (tax), 17 per cent will face 12 per cent , 43 per cent (will face) 18 per cent and 19 per cent will face 28 per cent," Adhia said, adding that the overall tax burden on the average household will decline after implementation of GST.


All chemicals and intermediate goods will be in the 18 per cent slab.

"We are banking on hope that under GST, evasion will be checked and buoyancy will go up," the minister said.

The council will decide on fitment of services in tax slabs and taxation of six items on Friday.

The issues in the goods category relate to taxation of gold, textiles, biodiesel and bidis, as also differential taxation of high-priced and low-priced products in the same segments such as packaged cereals, biscuits and footwear.

Some states such as Kerala have demanded a 5 per cent rate on gold, saying luxury items should attract a higher rate. Industry bodies representing footwear and biscuits have demanded that their lower-priced products be taxed at 5 per cent or exempted.

"The broad rate structure of GST has become clear with very few items being exempted, most of them being in the 18 per cent category and a large chunk under the 28 per cent category," said Bipin Sapra, tax partner, EY India. "Accordingly, while food stuff and unprocessed basic items like tea, coffee and edible oil may become cheaper, a large number of items which will be under 28 per cent bracket would become costlier."

Prices look set to drop on some items

"Categorisation of several consumer products like soaps, toothpaste and hair oil under 18 per cent is good news and should see price drop for consumers," said Pratik Jain, leader, indirect tax, PwC. "Similarly, several food items such as edible oil, tea, coffee, sugar, etc, have been kept at 5 per cent , with exemption for milk and foodgrain, which would also cheer industry."

The 14th meeting of the GST Council also approved final drafts of seven rules, the minister said, while two dealing with transition provisions and returns will be taken up after the legal committee finalises them in a week. The rules that have been approved deal with composition, valuation, input tax credit, refund, invoice, return and payments.