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Informist, Saturday, Oct. 19, 2024

 

NEW DELHI – The Group of Ministers on goods and services tax rate rationalisation met Saturday and discussed a host of rate rejigs, which will help the government to mop-up additional revenues to the tune of INR 220 billion per year, according to people aware of the development. The proposals will be presented to the GST Council during its upcoming meeting in November. The proposed changes aim to raise taxes on luxury and sin goods, on one hand, and provide relief on essential items, on the other.

 

The ministerial panel, headed by Bihar Deputy Chief Minister Samrat Chaudhary, decided to propose lowering the 18% GST on packaged water above 20 litres to 5%, 12% GST on bicycles costing less than INR 10,000 to 5%, and 12% GST on exercise notebooks to 5%. This move is aimed at making essential products more affordable, especially for middle-class and lower-income groups, people in the know said, requesting anonymity. 

 

Informist had exclusively reported on Wednesday, citing senior finance ministry officials, that the rate rationalisation panel will bring essential commodities or items for mass consumption, which are currently at 12% or 18%, to nil or 5%. "The GST Council has already done work in that direction but there is room for more," one of the finance ministry officials had said. 

 

The six-member Group of Ministers on rate rationalisation is tasked with trimming the list of items exempt from GST, reassessing tax rates, and correcting inverted duty structures. Informist had also reported that as part of its deliberations, the panel may also raise tax rates on certain goods and services, to net out negative revenue implications from lowering GST on some goods and services.

 

On Saturday, the rate rationalisation panel proposed to increase the GST on wrist watches priced above INR 25,000 to 28% from 18% and on shoes costing over INR 15,000 to 28% GST from the current 18%. "By raising taxes on premium items like wrist watches and high-end shoes, the government is looking to boost revenue without affecting the majority of consumers," an official said. The broad consensus is to provide relief on consumer goods and charge a higher rate for items with premium value.

 

The rate rationalisation panel has Kerala Finance Minister K.N. Balagopal, Uttar Pradesh Finance Minister Suresh Kumar Khanna, Karnataka Revenue Minister Krishna Byre Gowda, West Bengal Finance Minister Chandrima Bhattacharya and Rajasthan Medical and Health Services Minister Gajendra Singh as members.

 

INSURANCE GST 

These proposed changes will also help counter the revenue implications of another Group of Ministers' proposal--to exempt GST on life insurance premiums for all and some health insurance premiums.

 

Separately, another 13-member ministers' panel - that also met on Saturday – is in favour of exempting GST on life insurance premiums, including plans that consist of family members and on health insurance premiums for senior citizens. For other citizens, health insurance cover up to INR 500,000 is likely to be exempted and the existing rate of 18% will be charged for health insurance cover over INR 500,000.

 

"Every GoM member wants to give relief to people. Special focus should be on senior citizens. We will submit a report to the Council. A final decision will be taken by the Council," Chaudhary, who is the convenor of this panel on insurance as well, said after the meetings.

 

It is to be noted that there was always a consensus even at the GST Council to lower the GST on premiums; however, there were some technicalities that deterred the Council from taking a call in the last meeting. Informist had earlier reported, citing a senior finance ministry official, that there have been occasions in the past when cuts in tax rates announced by the GST Council have not been passed on to the consumers of those goods and services. Instead, companies increased their profit margins.

 

In November 2017, after the Council reduced GST rates on restaurants to 5% from 18% and 12%, anti-profiteering investigations were initiated against some of them for allegedly not passing on the benefit of reduced taxes to customers.

 

Though insurance products are homogenous, companies perform their own underwriting and product design, with pricing done accordingly. As such, even if GST rates are cut, companies can tweak the base price of insurance policies so that the ultimate cost for policyholders reamins unchanged. On top of that, no new GST anti-profiteering cases will be accepted from 2025-26

(Apr-Mar).

 

In its last meeting on Sept. 9, the GST Council had announced forming a 13-member Group of Ministers to look into the possibility of cutting the tax rate on life and health insurance premiums from the current 18?ter demands from various quarters that these premiums should not attract any tax.

 

The Group of Ministers is headed by Bihar deputy chief minister, and includes ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu, and Telangana.  

 

These GST rate tweaks – with the twin objective of giving relief to consumers and boosting revenues - are proposed at a time when many states expressed concerns about lower revenue growth. "Most states' revenue growth is in the range of 8-10%. Few are doing better, few are doing much worse," an official, who is part of the GST Council meetings, had told Informist last month. It is safe to say the upcoming GST Council meeting will be a crucial one, where both the panels' proposals will be taken up for consideration.  End

 

Reported by Priyasmita Dutta

Edited by Vandana Hingorani

 

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