The GST Council in its meeting held in Srinagar (J&K) vide dated 18Th & 19th May 2017 finalized GST rates on Goods and Services and just after end of the meeting GST rate schedules were uploaded on the CBEC website. Since then lot of discussion on the positive or adverse impact of the GST rates are going on. The Govt. of India has also been regularly saying that GST rates will be revenue neutral rate as well as at par with the existing tax levy. Accordingly Central Board of Excise & Customs has issued four press releases between 22nd May 2017 and 26th May 2017 giving comparative analysis of the proposed GST rates to the prevailing taxes. I have compiled all the press releases for better understanding.
1. Sugar: Sugar attracts specific central excise duty of Rs. 71 per quintal plus Sugar Cess of Rs. 124 per quintal, which translates to ad valorem rate of more than 6%. Including incidence on account of account of CST, octroi, entry tax, etc., the present total tax incidence would work out to more than 8%. As against this, the proposed GST rate on sugar is 5%
2. Cement:Packaged cement attracts central excise duty of 12.5% + Rs.125 PMT and standard VAT rate of 14.5%. At these rates, the present total tax incidence works out to more than 29%. If we include tax incidence on account of CST, octroi, entry tax, etc., the present total tax incidence would work out to more than 31%. As against this, the proposed GST rate for cement is 28%.
3. Medicaments, including Ayurvedic, Unani, Siddha, Homeopathic or Bio- chemic systems: Medicaments, in general, attract 6% central excise duty and 5% VAT. Further, CST, octroi, entry tax, etc. are also applicable in general. At these rates, the present total tax incidence works out to more than 13%. As against this, the proposed GST rate on medicines, including ayurvedic medicines, is 12%
4. Smart phones: Smart phone attracts 2% central excise duty [1% excise duty + 1% NCCD]. VAT rates vary from State to State from 5% to 15%. Weighted average VAT rate on smart phones works out to about 12%. Thus the present total tax incidence on smart phones works out to more than 13.5%. As against this, the proposed GST rate for smart phones is 12%.
5. Medical devices including surgical instruments: Medical devices, including surgical instruments, in general attract 6% central excise duty and 5% VAT. Along with CST, octroi, entry tax, etc., the present total tax incidence on them works out to more than 13%. As against this, the proposed rate under GST is 12%.
6. Tea and coffee (other than instant coffee):Tea and coffee attract Nil central excise duty and VAT rate of 5%. Considering embedded taxes in production of tea and coffee and the incidence on account of CST, octroi, entry tax, etc. the present total tax incidence works out to more than 7%. As against this, the proposed GST rate for tea and coffee (other than instant coffee) is 5%.
7. Milk powder: Milk powder attracts Nil central excise duty and 5% VAT. Considering embedded taxes in production of milk powder and the incidence on account of CST, octroi, entry tax, etc. the present total tax incidence works out to more than 7%. As against this, the proposed GST rate on milk powder is 5%.
8. Puja samagri including havan samagri: These goods will be under Nil category. However, exact formulation for the same is yet to be finalized.
9. Entertainment Services: The rate of GST approved by GST Council on services by way of admission to entertainment events or cinematography films in cinema theaters is 28%. However, the entertainment tax rates in respect of exhibition of cinematography films in theaters/ cinema halls, currently levied by States are as high as 100% in some of the States.
The rate of entertainment tax on cable TV and Direct-To-Home (DTH) levied by States is in the range of 10%-30% in many States. Apart from this, Service tax is also leviable at the rate of 15%. As against this, the rate of GST approved by GST Council on these services is 18%.
The rate of GST approved by GST Council on access to circus, theater, Indian classical dance including folk dance and drama is 18%ad valorem. Further, the GST Council has approved an exemption up to a consideration for admission of Rs 250 per person. These services currently attract entertainment tax levied by the States.
Thus, entertainment services shall suffer a lower tax incidence under GST. In addition to the benefit of lower headline rates of GST, the service providers shall be eligible for full input tax credits (ITC) of GST paid in respect of inputs and input services. Presently, such service providers are not eligible to avail of input credits in respect of VAT paid on domestically procured capital goods& inputs or of Special Additional Duty (SAD) paid on imported capital goods and inputs. Thus, while GST is a value added tax, entertainment tax, presently levied by the States is like a turnover tax.
10. GST on Telecom Services:Telecommunication services presently attract service tax of 14% along with Swachh Bharat Cess (SBC) of 0.5% and Krishi Kalyan Cess (KKC) of 0.5%. While service tax is a pure value added tax, the above mentioned cesses are not. This is for the reason that while no ITC (input tax credit) of SBC is available, the ITC of KKC is allowed to be set off only against KKC. Therefore, both the cesses are turnover tax.
As against the above, the telecommunication services will attract GST of 18% in the GST regime, which is a pure value added tax because full ITC of inputs and input services used in the course or furtherance of business by the telecommunication service provider would be available.
Moreover, presently telecom service providers are neither eligible for credit of VAT paid on goods nor of special additional duty (SAD) paid on imported goods/equipment. However, under GST, telecom service providers would avail credit of IGST paid on domestically procured goods as also imported goods. As per some estimates, this additional input tax credit would be as much as 2% of the turnover of the telecom industry. Further, ITC of service tax paid on assignment of spectrum by the Government in 2016 is presently allowed to be availed of by the telcos over a period of 3 years. In the GST regime, the entire credit can be taken in the same year. Resultantly, the balance two-thirds credit of the previous year would be admissible in the current financial year itself. All of these would reduce the telcos liability to pay GST through cash to about 87% of what they paid in the last fiscal.
Thus, the telcos are required to re-work their costing and credits availability and re-jig their prices and ensure that the increased availability of credits is passed on to the customers by lowering their costs.
(Author is a GST Consultant and can be reached at firstname.lastname@example.org)
Disclaimer: The views expressed herein above are solely author’s personal views/opinion. This is an informational article and should not be considered as legal opinion. The possibility of any errors and omissions in the article cannot be ruled out.