India clears major obstacle to GST introduction on July 1

A wholesale store selling processed foods and confectionery items in the Crawford Market in Mumbai. A goods and services tax is in the works for India as Prime Minister Narendra Modi strives to unify the nation of 1.3 billion people into a common mar
A wholesale store selling processed foods and confectionery items in the Crawford Market in Mumbai. A goods and services tax is in the works for India as Prime Minister Narendra Modi strives to unify the nation of 1.3 billion people into a common market. The GST will have five broad "slabs", or tax rates.PHOTO: BLOOMBERG
A wholesale store selling processed foods and confectionery items in the Crawford Market in Mumbai. A goods and services tax is in the works for India as Prime Minister Narendra Modi strives to unify the nation of 1.3 billion people into a common mar
PHOTO: REUTERS

Ministers continuing to decide on which goods will fall under the five tax brackets

NEW DELHI • India has cleared one of the last major hurdles to introducing a goods and services tax (GST), after government ministers finalised rates for substantial items in the biggest shake-up of the nation's tax system since independence in 1947.

Government ministers were continuing to meet yesterday to determine which goods fall under the GST's five broad rates, along with final details on an exemption list, input tax credits and transitional provisions as the government races to meet the July 1 deadline for the national sales tax.

"Overall impact is not inflationary," Finance Minister Arun Jaitley told reporters after meeting state finance ministers in Srinagar, a city in the northern state of Jammu and Kashmir, on Thursday.

"The tax burden has not increased in any commodity. In many, there is a reduction, particularly as tax on tax is gone. On some, we have deliberately brought tax down."

The ministers still need to decide on packed and branded food items, he said. "Broadly, all rates of 1,211 items have been decided except these six categories," he added.

Discussions are continuing on categories including cigarettes, gold, bio-diesel, footwear and agricultural implements, a Finance Ministry official, who asked not to be identified, told reporters.

The main beneficiaries of the new tax will include steelmakers and some consumer goods, though personal care items including sanitary ware will be taxed at the top rate, along with appliances such as air conditioners.

  • 5% Sugar, tea and edible oil will fall in the 5 per cent bracket.

    28% Motorcycles, baby carriages and razors will face a 28 per cent rate.

Revenue Secretary Hasmukh Adhia told reporters in Srinagar: Of 1,211 items, the exemption list contains 7 per cent of items.

• Coal is at the 5 per cent bracket, down from 11.69 per cent currently.

• Sugar, tea and edible oil will fall in the 5 per cent bracket.

• Toothpaste, soap and hair oil are in the 18 per cent slab.

• Cereals are included in the exemption list now, down from the current 5 per cent, while the rate on packed and branded cereals is yet to be decided.

• Motorcycles, baby carriages and razors will face a 28 per cent rate.

The rules of transition and returns have also yet to be approved, Mr Adhia said.

The national tax will replace more than a dozen federal and provincial levies as Prime Minister Narendra Modi strives to unify the nation of 1.3 billion people into a common market and make it easier to do business in the world's fastest-growing major economy.

Much of the work on the GST has already been completed, including the five broad "slabs", or tax rates.

These include a rate of zero for essential items such as grains, 5 per cent for mass consumption items such as tea and 12 per cent for commonly used products such as processed foods. Rates are 18 per cent for household goods such as soaps and 28 per cent for durables such as cars.  An extra charge will be levied on items such as luxury cars and tobacco products.

The federal government has agreed on compensation to be paid to states in the event of any revenue loss due to the implementation.

As of May 4, eight states including Rajasthan, Telangana, Bihar, Madhya Pradesh, Haryana and Jharkhand have passed a state goods and services tax Act in their state assemblies.

The remaining states are likely to pass the state GST Bill "before the end of this month", except for one or two, according to a federal government statement.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 20, 2017, with the headline 'India clears major obstacle to GST introduction on July 1'. Print Edition | Subscribe