Skip to main content
The constraints which any regulatory agency has in fixing the goods and services tax (GST) rates in a country include the fact that it should be low enough to ensure compliance as well as not cause inflation, and high enough to generate revenue for the government. The concerns which led the GST Council to initially prescribe multiple rates was primarily to generate the same revenue as before, and in that light, keep the effective indirect tax rate on the commodity as close as in the previous jurisdiction. Rate rationalizations over a period of time have tried to bring down the rates in sectors to boost economic activity and move from a high rate of 28% to 18% for most commodities.
In the most recent rate rationalization, the highest tax bracket of 28% has been rationalized further with rates on daily-use items like perfumes, cosmetics, toiletries, hair dryers, shavers, mixer grinder, vacuum cleaners and lithium-ion batteries, being lowered to 18%. For a number of consumer durables like refrigerator, washing machine, small screen TV, storage water heaters, paints and varnish, the rate has been reduced from 28% to 18%. Then some products like sanitary napkins have been exempted completely while for others like handmade carpets, the rate has been reduced to 5%.
The impact of reduction of tax rates would be to reduce the price of these commodities. Since most of these are consumer items, this will impact household budgets in a positive way. However, where there is a complete exemption, those goods will not be able to enjoy the credit of input goods and services, which will become a cost and hence, the reduction in prices may not be commensurate with the percentage reduction in GST rates.
The impact of this rate rationalization would be multifold. There will be a revenue loss to centre and states because of these rationalizations. The total reduction would be roughly 35% (10% of 28%) of the GST collected on these items. However, given that these cuts would need to be passed on to the customer, due to anti-profiteering provisions, the demand and hence the sale of those commodities would increase, following a simple demand-supply curve. Individual commodities may have varying elasticities and the quantum might vary, yet, overall sales of these items would increase. This will give a boost to economic activity in the country leading to increase in GST and income tax revenue from other sources.
The rate structure in the next few years should move towards lower rate brackets, minimum exemptions and if any industry needs to be really benefitted in respect of a particular sector, then instead of exemption, either the goods need to be zero-rated or a minimum rate should be levied to recover the credits accruing in the cost.
The Mint, 1st August 2018, New Delhi

Comments

Post a Comment

Popular posts from this blog

TAX REGIME…need to understand for better Tax Planning

 Now the Tax season has been started, and before filing ITR one must understand about the Tax Regime for The better tax planning. Before filing ITR one, must calculate and compare Tax and effect on both the resime. Following car, some key points for understanding about the Tax resime Tent, it’s implications. *Key Points to Remember for Tax Regime from AY 2024-25 Onwards* 1. Default Tax Regime:    - The default tax regime is the New Tax Regime under Section 115BAC. If you wish to opt for the Old Tax Regime, you must specifically select it in the ITR form. 2. ITR 1 and ITR 2 Filers:    - You can choose either the Old or New Regime while filing your ITR.    - No need to file Form 10IEA for opting into the Old Tax Regime for AY 24-25 or for opting out of it from AY 25-26 onwards. 3. ITR 3 and ITR 4 Filers:    - To select the Old Tax Regime for AY 24-25, you must file Form 10IEA.    - If you wish to opt out of the Old Tax Regime from AY ...
Post a Comment
Read more

TEXTILE POLICY 2024....Roadmap For New Growth Story

MULTIPLE INCENTIVES AND BENEFITS ANNOUNCED TO BOOST TEXTILE SECTORS FOR ACHIEVING NEW HORIZONS IN THE TEXTILE SECTOR KEY HEIGHLIGHTS OF THE POLICY: Capital subsidies : New industrial units can receive capital subsidies ranging from 10% to 35% of their eligible fixed capital investment (eFCI), up to a maximum of ₹100 crore. The subsidy amount is based on factors like location, activity, and employment levels.   Payroll assistance : Female workers receive ₹3,000 to ₹5,000 per month, while male workers receive ₹2,000 to ₹3,000 per month.   Training support : Workers receive ₹5,000 per month for three months.   Credit-linked interest subsidy : Businesses can receive an interest subsidy of 5% to 7% of their eFCI for up to eight years.   Power tariff subsidy : Units that use power from distribution companies or renewable power for five years receive a subsidy of ₹1 per kWh.   Quality certification : Textile units receive assistance f...
Post a Comment
Read more
SME IPO………….ONE OF THE UNIQUE WAY FOR FINANCING YOUR BUSINESS AND MULTIPLYING WEALTH IF YOUR BUSINESS IS GOOD GROWING, IF YOUR BUSINESS IS PROFITABLE, IF YOUR BUSINESS HAS GOOD REALISTIC PROJECTIONS, IF YOUR BUSINESS HAS POTENTIALS TO GROW HORIZONTALLY AND VERTICALLY AND IF YOU ARE VISIONER……….READ THIS KNOWLEDGE SHAREING For any business in the world, FINANCE is the 1 st and pre-requisit to establish and run the business and to write its growth story. Many profitable business do not survive due to availability of finance or due to availability of finance at high cost. There are many ways to finance business…i.e. own capital, Loan Funds from banks, Financial institutions, Debt fund , Unsecure loan funds , Pvt Equity, Public equity funds and so on and so forth… but for the growth of business , for developing business horizontally and vertically, low cost fund can play the crucial roll for the whole growth story.   Funding business through debt instrument is the costly affair ...
Post a Comment
Read more