From UPSC perspective, the following things are important :
Prelims level : GST Slabs
Mains level : Issues with GST Rationalization
From July 18, a 5% Goods and Services Tax (GST) has been levied on several food items and grains that are sold in a pre-packed, labelled form even if they are not branded.
What is the news?
- So far, these items, which include curd, lassi, buttermilk, puffed rice, wheat, pulses, oats, maize and flour, were exempted from the GST net.
- The fresh tax levies have attracted an outcry from traders as well as consumers.
What is GST?
- GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire country.
- It is charged at the time of supply and depends on the destination of consumption.
- For instance, if a good is manufactured in state A but consumed in state B, then the revenue generated through GST collection is credited to the state of consumption (state B) and not to the state of production (state A).
- GST, being a consumption-based tax, resulted in loss of revenue for manufacturing-heavy states.
What are GST Slabs?
- In India, almost 500+ services and over 1300 products fall under the 4 major GST slabs.
- There are five broad tax rates of zero, 5%, 12%, 18% and 28%, plus a cess levied over and above the 28% on some ‘sin’ goods.
- The GST Council periodically revises the items under each slab rate to adjust them according to industry demands and market trends.
- The updated structure ensures that the essential items fall under lower tax brackets, while luxury products and services entail higher GST rates.
- The 28% rate is levied on demerit goods such as tobacco products, automobiles, and aerated drinks, along with an additional GST compensation cess.
How did the rate hikes come about?
- The 5% tax on unbranded packed food items was approved by the GST Council.
- Some of the other items to have lost their tax-exempt status include bank cheques, maps and atlases, hotel rooms that cost up to ₹1,000 a night, and hospital room rents of over ₹5,000 a day.
- The pre-packed items weighing over 25 kg would not attract GST.
Why such move?
- This move was part of a broader set of changes in the GST structure to do away with tax exemptions as well as concessional tax rates.
- The Centre and States had discussed the need to raise revenues from the GST, which at the time of its launch five years ago, was premised on levying a ‘revenue-neutral’ rate of 15.5%.
- All affected food items, including wheat, pulses, rice, curd and lassi, will be exempt from GST when sold loose.
What has the government said on the issue?
- FM has hit out at misconceptions about the GST levies on food items and dismissed suggestions that they were imposed unilaterally by the Centre.
- The 5% levy, she said, was critical to curb tax leakages and was not taken by ‘one member’ of the GST Council alone as all States had agreed to the move.
- When GST was rolled out, a GST rate of 5% was made applicable on branded cereals, pulses, flour.
- This was later amended to tax only such items which were sold under a registered brand or brands on which enforceable right was not foregone by the suppliers.
- This tax exemption triggered ‘rampant misuse’ by reputed manufacturers and brand owners leading to a gradual drop in revenues.