Govt Weighs Two GST Slabs Of 5% And 18%; Sin Goods May Attract 40%: Sources
The Centre proposed to 'essentially move towards simple tax" with 2 slabs- 'standard and merit", with special rates applicable for only for select few items, the finance ministry said on Friday. As per sources, the finance ministry has proposed a two-slab GST rate structure to the Group of Ministers (GoM), along with special rates for select items.
Prime Minister Narendra Modi, in his 12th consecutive Independence Day address from the Red Fort, announced that the government will roll out 'next-generation GST reforms" by Diwali, aimed at easing the tax burden on households and small businesses.
He said the reforms will rationalise tax slabs and reduce GST rates on essential and daily-use items, calling the move a 'massive gift" to citizens. PM Modi said, 'We are committed to making life easier for the common man. This Diwali, we will bring GST reforms that will lower prices and boost compliance."
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Indian Express
7 minutes ago
- Indian Express
Proposed GST reforms: Lower 18% for small cars, tax on luxury cars may remain high
The proposed overhaul of the Goods and Services Tax (GST) regime is likely to bring relief to those looking to buy cars, especially smaller cars, with the government looking at creating a distinction in tax rates for smaller and bigger cars. Small cars, which currently attract 28 per cent GST plus small cess rates of 1-3 per cent, could get moved into the 18 per cent bracket in the new dispensation, government sources said. Bigger luxury cars and SUVs are likely to be shifted into the special rate category of 40 per cent after the removal of the 28 per cent slab, they said. 'Small cars are not luxury items or demerit goods. Only 5-7 items are going to be retained in the 40 per cent slab,' a government source told The Indian Express. The benefits are also expected to accrue for entry-level motorcycles. GST on 350 cc bikes is 28 per cent at present, which may be brought down to 18 per cent, while bikes with an engine capacity of more than 350 cc may get charged the higher rate. At present, bikes with engine capacity of over 350 cc attract a GST rate of 28 per cent along with a cess of 3 per cent, taking the total tax levy to 31 per cent. Among cars, smaller cars, including entry level hatchbacks, small sedans and mini-SUVs attract 28 per cent GST along with cess rates of 1 per cent or 3 per cent at present. For instance, small cars with engine capacity up to 1200 cc and less than 4 metres in length figure in the highest slab rate of 28 per cent and face a cess of 1 per cent (petrol) and 3 per cent (diesel). In fact, mid-sized cars are also likely to see a slight reduction in their tax incidence as the maximum rate in the new GST system is proposed to be 40 per cent. Currently, mid-sized cars, with engine capacity above 1200 cc (petrol) or 1500 cc (diesel), attract a cess rate of 15 per cent over and above the 28 per cent slab rate, implying total tax rate of 43 per cent. This is likely to come down to 40 per cent. Luxury cars with engine capacity above 1500 cc and SUVs with bigger engine capacity, and over 4 metres in length, that currently face 20 per cent and 22 per cent cess rates, respectively, over and above the 28 per cent GST rate, may, however, see an additional levy to keep the tax incidence same as now. Industry sources said that car manufacturers are likely to look at pushing cars having less than 1200 cc engine capacity in the market to benefit from the cost advantage from reduction in the GST rate to 18 per cent from 28 per cent. 'The discussions have begun since the announcement of the proposed GST overhaul. If they have to bring out cars under the new tax structure six months down the line, the planning has to start now,' an industry source said. The automobile market has been witnessing a sharp uptrend in favour of premium models at the mid-level segment and above, instead of smaller ones. An entry-level car costs nearly four times a scooter or motorcycle, acting as a drag on the segment. The reduction in tax rates could boost the small cars industry amid dwindling sales at the entry level.
Indian Express
7 minutes ago
- Indian Express
GoM meeting on GST reforms next week, tight timeline for Council's nod
The Group of Ministers (GoM) on Rate Rationalisation is set to meet in the coming week to discuss the proposal on next-generation GST reforms Prime Minister Narendra Modi announced on Friday. The GoM has ministers from six states: Kerala, Uttar Pradesh, Rajasthan, West Bengal, Bihar and Karnataka. While the proposal was shared with the ministers from the six states a day before the PM's Independence Day address, the Department of Revenue in the Union Ministry of Finance will make a presentation to the GoM when it meets, sources said. Sources in the Union Finance Ministry said they were confident the GoM and later the GST Council would find merit in the proposal. Internal calculations by the Department of Revenue in the Finance Ministry suggest that gross GST revenues under the proposed two-pillar rate structure of 5 per cent and 18 per cent will not be lower than what it is now. Giving a broad idea of the proposal, sources said most of the products and services would be placed in either of the two rates — 5 per cent or 18 per cent. Goods and services used by the common man, or as inputs by farmers, small entrepreneurs and MSMEs, will attract the lower 5 per cent duty. This will reduce the tax burden and is expected to drive consumption. Most other goods and services will attract the 18 per cent rate, they said. Sources said that in categorising goods and services as sin and demerit goods and bracketing them under the special rate of 40 per cent, the Department of Revenue has kept in mind the country's 'social ethos'. At present, there are multiple rate slabs — 5 per cent, 12 per cent, 18 per cent and 28 per cent — and a compensation cess ranging from 1 per cent to 290 per cent that is levied on sin and luxury goods such as cars, refrigerators, air conditioners, pan masala, tobacco and cigarettes. With loans taken by the Centre to pay compensation cess to states getting recouped and fully repaid by November-December, the cess rates on goods are proposed to be subsumed at this special rate of 40 per cent, sources said. But on some goods like tobacco, the tax incidence is substantially higher than 40 per cent; the government is aware of this, and a separate mechanism may be arrived at in due course, the sources said. Though there might be an initial impact on revenues, the gains from higher compliance and consumption are expected to offset the losses, they said. Against a tight timeline, the Centre is learnt to have factored in at least three meetings of the GoM before a final proposal is put before the GST Council, the apex decision-making authority on aspects of the indirect tax regime that was introduced in 2017. 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That is the difference,' the source said. The PM's announcement has to be seen in the context of it being a proposal for states to consider, the source said. 'A reform like this should have everybody on board for it to work best. The GoM on rate rationalisation has been working on this issue for the last four years… The Centre has now taken a leadership position on this, and put this proposal for consideration of the panel,' a source said. The Centre, sources said, is convinced of the buoyancy from the rate rationalisation taking care of the worries stemming from revenue loss, unlike an earlier attempt in 2018 when rate cuts did not result in revenue gains. 'There were problems then (2018), since it (the cut) led to inversions in duty rates in multiple sectors and that led to some amount of gaming of the system by players to avail of input tax credits. Evasion grew… This move to revamp the rate structure (now) is to avoid inversions and inversions-related problems,' an official said. 'Technically, the states should be convinced. Politically, one has to see how they respond,' the official said.
Time of India
17 minutes ago
- Time of India
Kerala CM slams PM Modi for praising RSS in I-Day speech
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