Goods and Services Tax (GST)

What is the Controversy over GST levies on Food?

Note4Students

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.

 

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