Will Economy grow faster with reduced rates of Goods & Services Tax (GST)?

Amid criticism from the opposition over the way GST has been implemented and  after feedback and complaints from various business quarters,  the GST council on October 6, 2017 carried out major changes to the new national tax regime to ease compliance norms for small and medium companies and reduced tax rates on nearly two dozen items. Calling it a tool to help small business, the Prime Minister Narendra Modi said, “Today’s recommendations will immensely help small and medium business.”

Barely three months after rolling out the Goods and Services Tax, Finance Minister Arun Jaitley, who heads the council, also announced businesses with a turnover of up to 1.5 crores would be allowed quarterly filing of GST Return.

The impact of fiscal and monetary policy changes on economy is more relevant to understand whether it would bring with it a wheel of growth or could prove against the economic and business interests of the country. An MBA student is supposed to know and must be able to speak about it in the GD round after gathering thought and analyzing the pros and cons of the same.

 

Background
Goods and Service Tax (GST) was launched at midnight on June 30, 2017 in a ceremony held at Central hall of Parliament.  Various provisions and benefits of GST were shared in their speeches by the Finance minister of India, Mr Arun Jaitley; the Prime Minister of India Mr Narendra Modi and the President of India Shri Pranab Mukherjee. GST therefore, became effective from July 1, 2017.

 

Tax rates were replaced by GST rates with effect from July 1. GST replaced a slew of indirect taxes with a unified tax.

 

However, right from the beginning the GST implementation began to show cracks and problems in implementation, documentation and about the irrational GST rates started to flare up. Initiatilly, the Government thought it could be resolved and was temporary phase, but the monthly filing of GST returns, high rates of GST and lack of knowledge made the things worse.

 

GST Council reviewed the GST structure and then rationalised it.
 

Key points of change in GST regime

Small and Medium traders and exporters were hurt most by the application of GST. It was crucial to Prime Minister Narendra Modi’s plans to create millions of more jobs. Accordingly, the decisions were taken with a view to raise revenue and ease compliance. Following are the major changes in GST implementation taken to boost the growth rate of Indian economy and provide an environment for ‘Ease of doing Business’.

 

1.Businesses with less than 1.5 crores annual turnover  will file returns and pay taxes on a quarterly basis instead of monthly basis. Such businesses make up for nearly 90 per cent of tax assesses but contribute very little tax.

 

2. The GST council also agreed to raise the threshold for the composition scheme. This scheme allows small traders to pay a standard tax rate – from Rs. 75 lakh in turnover to Rs. 1 crore. These establishments pay standard tax rates; 1 per cent for traders, 2 per cent for manufacturers and 5 per cent for restaurants.

3. Reverse charge mechanism suspended till March 2018. This rule shifts the liability to pay the tax on the buyer rather than the seller and the supplier has to be registered under GST to check tax evasion.

4. The GST council agreed and advised the government to start issuing refund cheques from 10 October to exporters who had complained their working capital was locked up. By April 1, 2018, the council also targeted to have e-wallets for every exporter to credit a notional amount as an advance credit to pay taxes.

5. The GST rates for textiles including zari, unbranded ayurvedic medicines, plastic and e-waste have been slashed by the council. The council comprises state finance ministers, officials from both states and the Centre and is headed by Union Finance Minister.

6. The RBI governor has suggested simplifying GST to boost growth and earlier cautioned also that “teething problems” with GST had impacted the manufacturing sector.

7. GST Council decided to defer registration of tax deduction and collection at source till March 31, 2018. Goods transporters who had threatened to go on strike, have been told services provided to unregistered entities would be exempted from GST.

The Prime Minister, Mr Modi has also promised to fix problems in GST cited by businesses.

Reduced GST rates

GST rates for certain Goods and IGST rates on Imports of specified Goods will be as under:

 

A.           GST RATE FOR FOLLOWING GOODS HAVE BEEN REDUCED

S.

No.

Chapter/

Heading/

Sub-heading/

Tariff item

Description

Present GST Rate

GST Rate Recommended by the GST Council

1.       

0804

Mangoes sliced dried

12%

5%

2.       

 

1905 or 2106

Khakra and plain chapati / roti

12%

5%

3.       

19 or 21

 

Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme dulyapproved by the Central Government or any State Government, subject to specified conditions

18%

 

5 %

 

 

4.       

21

Namkeens other than those put up in unit container and, -

(a) bearing a registered brand name; or

(b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any actionable claim or enforceable right in respect of such brand name has been foregone voluntarily

12%

5%

5.       

2710

Imposing GST only on the net quantity of superior kerosene oil [SKO] retained for the manufacture of Linear Alkyl Benzene [LAB]

18%

18%

[Clarification to be issued]

6.       

30

Ayurvedic, Unani, Siddha, Homeopathy medicines, other than those bearing a brand name

12%

5%

7.       

3213

Poster Colour

28%

18%

8.       

3407

Modelling paste for children amusement

28%

18%

9.       

3915

Plastic waste, parings or scrap

18%

5%

10.   

4004 00 00

Rubber  waste, parings or scrap 

18%

5%

11.   

4017 00 20

Hard Rubber waste or scrap

28%

5%

12.   

4707

Paper waste or scrap

12%

5%

13.   

4907

Duty credit scrips

5%

Nil

14.   

5401

Sewing thread of manmade filaments, whether or not put up for retail sale

 

18%

12%

15.   

5402, 5404, 5406

All synthetic filament yarn, such as nylon, polyester, acrylic, etc.

 

18%

12%

16.   

5403, 5405, 5406

 

All artificial filament yarn, such as viscose rayon, Cuprammonium,

18%

12%

17.   

5508

Sewing thread of manmade staple fibres

 

18%

12%

18.   

5509, 5510, 5511

Yarn of manmade staple fibres

18%

12%

19.   

5605

Real Zari

12%

5%

20.   

 

6802

All goods falling under heading 6802 [other than those of marble and granite or those which attract 12% GST]

28%

18%

21.   

7001

Cullet or other waste or scrap of Glass

 

18%

5%

22.   

8305

Fittings for loose-leaf binders or files, letter clips, letter corners, paper clips, indexing tags and similar office articles, of base metal; staples in strips (for example, for offices, upholstery, packaging), of base metal

 

28%

18%

23.   

8483

Plain Shaft Bearing 8483

28%

18%

24.   

84

Parts suitable for use solely or principally with fixed Speed Diesel Engines of power not exceeding 15HP

 

28%

18%

25.   

84 or 85

Parts suitable for use solely or principally with power driven pumps primarily designed for handling water, namely, centrifugal pumps (horizontal and vertical), deep tube-well turbine pumps, submersible pumps, axial flow and mixed flow vertical pumps

28%

18%

26.   

84 or 85

E-Waste

28%/18%

5%

27.   

Any Chapter

Biomass briquettes

18%

5%



 

B.     IGST EXEMPTION ON IMPORTS OF GOODS:

S. No

Description

Present applicable IGST rate

Recommended IGST rate

1

IGST exemption on imports of rigs imported for oil / gas exploration and production projects under lease, subject to the following conditions that:

(i)       Integrated tax leviable under section 5(1) of the IGST Act, 2017 on supply of service covered by item 1(b) or 5(f) of Schedule II of the Central Goods and Services Tax Act, 2017;

(ii)     The rig is not sold without the prior permission of the Commissioner of Customs of the port of importation;

(iii)   to re-export the goods within 3 months from the expiry of the period for which they were supplied under a transaction covered by item 1(b) or 5(f) of Schedule II of the Central Goods and Services Tax Act, 2017 out of India;

(iv)   to pay on demand an amount equal to the integrated tax payable on the said goods but for the exemption under this notification in the event of violation of any of the above conditions and applicable interest.

5%

Nil

2

Exemption from IGST on imports of medicines supplied free by international agencies like UNICEF, WHO, Red Cross etc.

 

12%/5%

Nil

3

A.    Exemption from IGST on imports of bona fide gifts upto CIF value limit of Rs. 5000 imported through post or air.

 

28%

Nil

 

GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India has adopted a dual GST model implying that taxation is administered by both the Union and State Governments.

After the changes in GST rates, it is expected that prices of essential items will stop increasing.   The small and medium businesses which saw no growth, would be on the track again and will contribute to the economic growth of the country.