A host of goods such as cars, motorcycles, refrigerators, air-conditioners and daily use items, including health care goods and services, could become cheaper if the GST reforms proposed by the Centre turn into reality.
The proposed rate changes were submitted to the Group of Ministers (GoM) on Rate Rationalisation ahead of Prime Minister Narendra Modi’s announcement during his Independence Day speech.
The GoM, which has Bihar’s Deputy Chief Minister Samrat Choudhary as Convenor, is expected to meet this week to consider the proposals after which it will go to the GST Council for approval.
Rate revision
Consumer durables and small cars, which are taxed at 28 per cent now, are proposed to be moved to the 18 per cent bracket, according to a top government official.
Pointing out that this is not just a rejig of rates but a comprehensive review to make GST compliant with its original intent of being a simple, single tax, the official said that though there will still be three slabs, it will effectively be just one rate now — 18 per cent, with most goods and services coming under this category. Merit goods will be taxed at 5 per cent and demerit goods at 40 per cent.
Daily items of consumption by the poor and middle-class will largely be taxed at 5 per cent; some of these items will be moved from the 12 and 18 per cent baskets, where they are now.
Demerit goods, which includes so-called “sin goods” and luxury products, will be taxed at 40 per cent. Apart from cigarettes, tobacco, gutka and online gaming, premium cars of higher engine capacity are likely to be cast under the demerit category, along with such items as yachts. Aerated drinks, which are now taxed at 28 per cent plus cess of 15 per cent, will also be grouped under demerit goods if the Council decides so, suffering a 40 per cent rate.
Compensation Cess
Meanwhile, the compensation cess could cease to be applicable by as early as December. The cess was imposed to repay the loan taken by the Centre to compensate States for their revenue shortfall during Covid. The official said that the government will have repaid the loan by December, well ahead of the March 2026 deadline.
“It will be illegal to collect the cess once the loan is repaid,” the official said, pointing out it was anyway linked to products taxed at 28 per cent, a category that will be dropped if the GST Council stamps it’s approval on the reforms.
The official said the government’s endeavour is to roll out the new structure well ahead of Deepavali, but pointed out that it is in the hands of the GST Council.
There could be some impact on revenues immediately if the new rates are implemented, but the hope seems to be that increased consumption driven by cheaper prices could lead to buoyancy. It is understood that more than one council meeting may be necessary, given the sheer volume of work involved. The first meeting of the council could be by mid-September.
