“An absolutely bold decision to reduce the GST rate of almost 170+ category of products from highest tax rate of 28 per cent to a standard rate of 18 per cent, which reflects the flexibility of government towards the demands of the business community and consumers.”
“The decision to limit the highest tax rate of 28 per cent only to 50 commodities is a bold move by the government which will negatively impact the revenue collection but improve the business and consumer sentiment.”
“Highly calculated move by government to win business confidence at the cost of tax revenue”.
Tax Rate overhaul - Harpreet Singh, Partner, Indirect Tax, KPMG in India:
On expected lines, rate of tax on several products such as beauty products, chocolates, wrist watches, sanitary fittings, etc. has been reduced from the 28% to 18%. This reduction in rate of around 178 products is likely to bring a smile on the face of the consumers. With this overhaul in tax rates, only luxurious products like air-conditioners, refrigerators etc. and sin products like pan masala, tobacco would now be taxable at the higher rate of 28%.
While this definitely is a consumer friendly move, what needs to be seen is what measures Government would undertake to compensate for the revenue loss (of around INR 20,000 Crores) resulting from this reduction in GST rates.
Perhaps, with reduction in rate of several products, the Government is banking upon higher tax compliances and wider tax base to compensate for this revenue loss. However, for this to happen, steps to ease the compliance and formation of dealer friendly tax administration would also be critical. Mere reduction in rates may not be sufficient to encourage dealers to come within the GST net, unless the confidence for simplified compliances in also instilled within the minds of the dealers.
Rejoice for small dealers - Harpreet Singh, Partner, Indirect Tax, KPMG in India:
Proposal to increase the composition threshold limit to Rs. 1.5 Crores means more dealers can now avail the benefit of simplified GST regime, whereby tax is paid at a flat rate of 1% instead of applying respective GST rates on each product. Also, reduction in rate of composition for manufacturers from 2% to 1% is likely to encourage small manufacturers to pay nominal GST and be on the right side of the law.
Eating out becomes cheaper - Harpreet Singh, Partner, Indirect Tax, KPMG in India:
Flat rate of 5% on all restaurants is likely to increase the appetite of all restaurant goers and may encourage them to have one more main course or a desert.
However, with reduction in rate to 5%, the input tax credit has been denied. This may not be a good news as the input GST paid by restaurants on cutlery, cooking apparatus, rent etc. would now get blocked and hence, the restaurants may look to pass this additional burden to the end consumer thereby partially offsetting the benefit of reduced GST rate.
From Priyajit Ghosh, Partner, Indirect Tax, KPMG in India
Reduction in tax rates on around 200 items from 28 percent to 18 percent, increase in threshold for the composition scheme, extension of filing timelines, simplification of filing requirements, suspension of invoice matching requirements would benefit the consumers as well as the trade. 5 percent levy on restaurants without credit may lead to a pricing debate
Balancing the revenue considerations for the Government and revisiting the MRP and sale price for the trade are likely to be the next focus areas