Amulti-tiered goods and services tax (GST) structure was decided by the GST council on Thursday. Arvind Subramanian, chief economic adviser at India’s finance ministry, comments on the development.
Edited excerpts from an interview:
What are your initial reaction on the new GST tax slabs?
By moving it up to 28% many of the items today that are in any case effectively taxed at whatever 28-29-30% that will be retained but it will also that extra amount that one might get relative to what we have proposed will allow a lot of the goods that currently were proposed at 26% to come down to 18%. So, it is both keeping the tax about the same on the relatively high-end goods in the 26% category but also financing a kind of tax reduction for many items consumed as the finance minister said by lower and middle class people.
There are lots of items oil, toothpaste, furniture, refrigerators, lots of consumer items. So, it actually allows the middle class and lower middle class to benefit from that.
Also the finance minister had indicated on that broadly that possibly even the small cars may move to the 28% band, we know that the committee of secretaries will be deciding the item wise but this is an important segment on the auto market, any thoughts on that?
We have decided in principle on the structure and broadly on what kinds of goods will go where but the exact allotment will now be determined by the group of committee of secretaries.
It is amply clarified that things like aerated soft drinks, tobacco products, your luxury cars other big luxury items, probably some of the white goods, the consumer durables as you have indicated will move to the 18% band but the rest of it will be at the 28% band and only some of these products will have a cess implication.
Exactly, yes, but in all those things the current incidence will be maintained broadly and there will be no increase in incidence on that. So, that is the decision.
On the cess front also the way that you will do it is basically to match the current tax incidence whatever is the differential will be the cess? So, it will be different as per the different commodities in the 28% plus bracket.
But remember those cesses are only on four commodities. So, the differential will apply only to four commodities that today are taxed at those high rates which is aerated beverages, luxury cars, tobacco and then of course the clean energy cess as well. So, cesses on five—but in case of the clean energy it is not part of the 28%, that is a separate thing. The additional cess is on four items.
Just to reiterate, this would be tobacco, aerated soft drinks, luxury cars and pan masala?
Yes.
So, this basically really takes of the inflationary impact because common consumers have really a lot to benefit because in essence your tax rates are coming down so how are you saying the rate structures are more or less revenue neutral?
It is revenue neutral but of course they are going to be efficiency gains which could finance some of the revenue. So, to that extent it is going to reduce de facto in a reduced incidence from the consumer absolutely relative to today.
But there is a possibility of some kind of revenue gap in the first year of GST rollout, any thoughts on that, how we plan to gear up on that or not really much of a concern?
At this stage, it is not a concern.
Most of the services will be at the 18% rate. Some of the other essential services probably could be at the lower rate. Anything on that because that is where the common consumer will really get hit?
As the FM said that will be decided by the committee of secretaries.
And no 40% rate at all?
Yeah, no 40% rate.