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Informist, Tuesday, Dec. 3, 2024

 

--Govt: Reports on GoM proposal for GST rate tweaks premature, speculative

--Govt: GST Council has not yet got GoM's proposals on rate rationalisation

--Govt: GoM on GST rate rationalisation yet to finalise recommendations

--Govt: GST Council to take final view on rate rationalisation proposals

 

NEW DELHI - After severe backlash on social media and negative impact on stocks of various companies, the Central Board of Indirect Taxes and Customs clarified in a post on X that the media reports on changes in goods and services tax on a host of products are "speculative and premature". 

 

"The GoM is only a recommendatory body. The GST Council has not yet deliberated on any GST rate changes. The Council has not even received the recommendations of the GoM," the department said Tuesday.

 

The department's comments come after the Group of Ministers on rate rationalisation Monday proposed to hike the GST rate of 28% on sin goods like cigarettes, tobacco and related products, and aerated beverages to a new rate of 35%. In total, the panel, which reportedly finalised its report to submit to the GST Council, decided to propose GST rate tweaks on nearly 150 items. "The net revenue impact will be positive," people aware of the development had said, requesting anonymity. The GST Council will take the report up for discussion in the next meeting on Dec. 21.

 

Following this development, on anticipation of higher GST on various products - especially tobacco products and aerated beverages - shares of companies like ITC Ltd. and Varun Beverages Ltd. fell during the day.

 

Shares of cigarette makers ITC and Godfrey Phillips India Ltd. fell by more than 3?ch early Tuesday. "They (cigarette makers) may raise prices by 3-5% and it will hurt volumes," an analyst with a Mumbai-based brokerage house said, adding that this price hike would only be enough to maintain margins at current levels. On the other hand, shares of Varun Beverages fell 5.3% to an intraday low of INR 598.80.

 

"In fact, the GoM has yet to finalise and present its recommendations to the Council after which the Council will take a final view on the recommendations of the GoM," CBIC said in the post on X. Affirming the statement from the indirect tax department, Finance Minister Nirmala Sitharaman said on social media that finance ministers of various states in the ministerial panel are working to address GST rate changes. "Thereafter, the GST Council, consisting of all state finance ministers will take up their recommendations when they next meet. Speculation is better avoided," Sitharaman said.

 

The Group of Ministers on rate rationalisation, headed by Bihar Deputy Chief Minister Samrat Choudhary, 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.  

 

At the meeting on Monday, which was chaired by Choudhary, the rate rationalisation panel also proposed to rationalise GST on apparel. Ready-made garments priced up to INR 1,500 will attract 5% GST, those between INR 1,500 and INR 10,000 will attract 18%, and garments costing above INR 10,000 will attract 28% tax. The GST Council will take a call on this proposal on Dec. 21.

At its previous meeting on Oct. 19, the panel had already proposed a host of GST tweaks, moving mass consumed items from a higher bracket to a lower bracket, while moving some luxury items to a higher bracket from the current lower GST. The proposed changes aim to raise taxes on luxury and sin goods on the one hand, and provide relief on essential items on the other.

 

The possibility of higher taxation on apparel, footwear and watches sparked online debate on the tax burden of consumers. To that extent, "35%GST" and "GSTonclothes" were trending on microblogging site X and was also one of the highest searched Google keywords Tuesday.

 

These rate rejig proposals come at a time when there is some strain on the government's revenues. On Monday, Sitharaman said that the average GST rate in 2023-24 (Apr-Mar) was 11.64%, much lower than the revenue neutral rate of 15.0-15.5% assumed during the introduction of the GST regime. A committee headed by the then chief economic adviser Arvind Subramanian had suggested a revenue neutral rate of 15.0-15.5%.

The GST Council started a rate rationalisation exercise as part of an attempt to improve revenues, by reassessing tax rates, pruning the exemption list, and correcting inverted duty structures. GST slabs may have to be rationalised to augment additional revenue for states, as several of them have revenue deficits despite being provided grants to eliminate such deficits, PRS Legislative Research had said in a report titled 'State Of State Finances' last year.  End

 

Reported by Priyasmita Dutta

Edited by Ashish Shirke

 

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