GST Council may cut rates of 70-80 products

The crucial goods and services tax (GST) Council meeting today, which is being viewed as Budget for the new unified indirect tax, could see a rationalisation of the GST rate on around 70-80 products and services, inclusion of more items in the input tax credit (ITC) list, simplification of compliance processes and return filing, said people in the know.

Officials to whom DNA Money spoke to said besides approvals for changes in the central GST (CGST), state GST (SGST), integrated GST (IGST) and GST laws, matters relating to inclusion of real estate and petroleum products  could also be taken up for discussion.

The Council is expected to look at reduction in GST rates for items like job-work services, biscuits, electric vehicles, handicraft, real estate, sanitary napkins, agricultural implements and others.  It is expected that the current rate of 18% on job-work services could be brought down to 12% or 5%. Biscuits could also see similar rationalisation in the GST rate, whereby the 18% being levied on it could come down to 12% or 5%.

Some are even expecting differential rates for lower priced biscuits and premium biscuits.

There is expectation of the GST rate on sanitary napkins being done away with or putting it in the 5% bracket for "rural empowerment". For handicraft goods, which enjoyed value added tax (VAT) exemption in many states, also GST on them could be made nil or 5%.

There has been a strong representation by the real estate sector for rationalisation of the current GST rate of 18% to 12%. Today, the effective GST rate on real estate is 12% due to an abatement of 33% on cost of land. This could come down to effective rate of 8% if the Council accepts the sector's demand for 12% GST rate.

M S Mani, partner, Deloitte India, expects the Council to "selective" while cutting rates.

"Rate changes on certain products and services are expected to be discussed, although the GST Council is expected to be very selective in this area considering the declining collections during the past two months. There is a need to rationalise several compliance processes in order to make GST more acceptable for SME's (small and medium enterprise). An easier compliance framework for pan India service providers would also be extremely welcome," he said.

GST revenues have consistently declined since its launch from Rs 95,000 crore in July to Rs9100 crore in August, Rs 92,150 crore September, Rs 83,346 crore in October and Rs 80,808 crore in November.

On the agenda of the Council, which is a decision-making body for all issues related to GST, also to looking into bringing real estate and petroleum products under GST.

Bringing real estate under GST would require a Constitutional amendment. The GST Council can only recommend to the government for it to be included under GST law.

"Today, tax on land and building is covered by the state list – List-2 –of the Constitution. So, it has move out of state list," said a tax consultant.

On the other hand, petroleum products are already a part of the GST Act and could be taken up by Council. However, it is unlikely that all products – petrol, diesel, aviation turbine fuel (ATF), natural gas and others – would be included in one step.

Many expect Council to take natural gas first other products later.

There is also expectation of items like cab services for employees, which are treated as business expenses by income tax (I-T) department, being included in ITC list.

"Things like rent-a-cab (for employees), on which ITC has been denied, could get included in the ITC list," said Bipin Sapra, tax partner, EY India.