Finance Minister Nirmala Sitharaman said on Wednesday that any increase in GST rates as part of the rate rationalization exercise aims to offset “inefficiencies” in the value chain.
Stating that all states are aware of the potential impact of rate rationalization on inflation, Sitharaman said any increase in tax rates will also offset the tax burden, which is borne by some other activities in this chain of value.
“Technology can correct anomalies of inefficiencies and therefore can have a possible impact on revenue collection. But the RBI study’s revenue neutrality rating was violated at the expense of the system that calls for correction,” Sitharaman said. to reporters after the 47th Board Meeting here.
According to an RBI study, the weighted average Goods and Services Tax (GST) tax rate fell to 11.6% from 14.4% at launch.
The revenue-neutral rate under the GST is expected to be around 15.5%, according to the report of the Subramanian Committee, which was submitted before the launch of the GST.
Sitharaman said huge refunds are given due to duty reversal in some cases and this needs to be fixed.
“As a result, you’re again sitting on potential points of tax return, which have been left out. That’s not the efficiency of the system. So streamlining rates, if it results in an increase, also offsets…the kind of inefficiencies that have arisen now or the collateral that is borne by other activities in that value chain,” she said.
So, streamlining rates is something the Group of Ministers (GoM) is also considering from this perspective, Sitharaman said.
Inefficiencies in the tax system manifest when inputs and final products are taxed at varying rates, resulting in either tax evasion or business entities being unable to fully utilize the input tax credit.
The GST Council, chaired by the Union Finance Minister and made up of State Finance Ministers, at the 47th meeting here endorsed the GoM Interim Report on Rate Rationalization, led by the Minister in chief of Karnataka Basavaraj Bommai.
The council also granted a 3-month extension for the panel to submit a full report on rate rationalization and the potential merger of tax blocks under the GST.
Asked about the potential impact of rate hikes on inflation, Sitharaman said inflation is not the concern of any particular state.
“All the ministers (in Council) are aware. They all look at the system with that in mind. So the decisions taken by the Council are not as if taken in isolation. The elected representatives who are part of the GST Board are fully aware,” she said.
“There was no opposition to the rate increase from any state,” Sitharaman said.
The panel in its interim report, now approved by the board, suggested removing the GST exemption on a host of items and also correcting duty reversal in some cases. The changes will be implemented from July 18.
So, pre-packaged and labeled meat, except frozen, fish, curd, paneer, honey, dried leguminous vegetables, dried makhana, wheat and other cereals, wheat or meslin flour, jaggery, puffed (muri) rice, all products and organic fertilizers and coir pith compost will not be exempt from GST and will be subject to a 5% tax effective July 18.
Similarly, an 18% GST will be levied on the fees charged by banks for issuing checks (lost or in the book). Maps and charts, including atlases, will be subject to a 12% tax, while unpackaged, unlabeled and unmarked goods will continue to be exempt from GST.
In addition, a 12% tax on hotel rooms below Rs 1,000/day will currently be levied against the tax exemption.
In addition, reverse duties for a host of items including edible oil, coal, LED lamps, printing/drawing ink, finished leather, and solar water heater would also be corrected. .
The council also approved the report of the assembly committee, made up of central and state government officials, to change the tax rates of certain items.
Tax rates for orthopedic implants (traumatology, spine and arthroplasty implants in the body); Orthotics (splints, splints, belts and stirrups); Prosthetics (artificial limbs) will be cut at a flat rate of 5%, from the current differential rate of 12 and 5%.
The Committee also recommended reducing the GST on cable car travel from 18% to 5% and on ostomy appliances from 12% to 5%.
The GST on the tetra pack would also be increased to 18%, up from 12% currently.
(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)