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GST council adopts concept paper discouraging tinkering with rates

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NEW DELHI: The Goods and Services Tax (GST) Council will actively discourage any further tweaks in rates, following a major revamp of the indirect tax regime on Friday to help small industries and exporters.

A concept paper adopted by the council says no manufactured goods should be given outright exemption as this would hinder the Make in India initiative. States should opt for direct subsidy transfers if they want to reduce tax incidence on any item. This suggests that companies looking for such breaks like Apple would not be able to get any outright tax exemptions.

“The whole idea is to look at the issue of rate revision afresh… There should be no ad hocism in rate revision,” said a government official familiar with the thinking behind the concept paper that will guide changes to tax rates from now on.

The key principles in the concept paper include one that manufactured goods should not be placed in the nil bracket as it would then face nil customs duty, impacting the domestic manufacturing adversely.

“As a rule no manufactured good shall be exempt from GST,” according to the paper, which was approved by the council on Friday. ET has seen a copy of the paper.

On Friday, the council raised the composition scheme threshold to Rs 1 crore from Rs 75 lakh, allowed smaller businesses with a turnover of up to Rs 1.5 crore to pay tax and file returns quarterly instead of monthly and exempted exporters from payment of tax under various promotion schemes among other decisions. The changes in GST, which was rolled out nationally on July 1, were made in response to industry feedback.

Any revision will also be carried out keeping in view that there is no blockage of input tax credit or the creation of an inverted duty structure in which input is higher than the finished product, the officials said.

Further, changes in tax rates will be considered after a period of at least three months, allowing them to settle in first.

GST council adopts concept paper discouraging tinkering with rates

The concept paper stated that the GST rate of 28 per cent should be reviewed after three months based on the criteria that have been decided. Goods that yield high revenue, luxury goods and sin goods will not be considered for revision despite being in the highest rate bracket. Revision could be considered for goods of mass consumption or public interest; intermediate goods that are used in business-to-business supplies; goods manufactured by small and medium enterprises; and export-related items.

Tax experts said this will keep the tax structure stable.

“Frequent and ad hoc changes in GST rates are definitely not desirable… This mechanism would ensure that some general guidelines are followed for deciding the rates in future, while making an exception if needed,” said Pratik Jain, leader, indirect taxes, PwC. Jain hopes that many items in the 28 per cent slab will move to the lower bracket of 18 per cent.

“Benefits of GST can only be realised if rates are moderate,” Jain said. The council had decided on fitment of goods based on the principle of equivalence–tax incidence prior to launch of GST. GST has four rate slabs—5, 12 per cent, 18 per cent and 28 per cent. There have been changes in a number of goods after the roll out based on representations received from the industry. The council moved more than two dozen items to lower slabs on Friday.

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