Tea at 5%, baby carriages at 28% as India clinches GST rates in biggest tax shake-up since independence

India's Finance and Defence Minister Arun Jaitley arrives to attend a two-day meeting of the Goods and Services Tax (GST) Council, comprising federal and state finance ministers, in Srinagar May 18.
India's Finance and Defence Minister Arun Jaitley arrives to attend a two-day meeting of the Goods and Services Tax (GST) Council, comprising federal and state finance ministers, in Srinagar May 18.PHOTO: REUTERS

NEW DELHI (Bloomberg) - Tea will be taxed at 5 per cent while motorcycles will face 28 per cent duty after India finalised most rates for its goods and services tax, clearing the way for the biggest shake-up in the nation's tax system since independence in 1947.

Government ministers continued to meet on Friday (May 19) 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 with state finance ministers in Srinagar, a city in the northern state of Jammu and Kashmir on Thursday (May 18).

"The tax burden hasn't 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, Mr Jaitley 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.

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 exempt 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 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 like tea, commonly used products such as processed foods at 12 per cent.

Rates for household goods like soaps at 18 per cent and durables such as cars at 28 per cent. An extra charge will be levied on items such as luxury cars and tobacco products.

The federal government has already 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 had passed a state goods and services tax act in their state assemblies. The remaining states were likely to pass the state GST Bill "before the end of this month", except for one or two, according to a federal government statement.