GST Council go for major realignment: makes rate reduction on popular items

Nearly four months after the launch, the GST Council has slashed rates for more than 200 items including goods and services. Rates of all several popular items like wire, cables, furniture etc., will come down from the 28% rate.

GST Council that met for the 23rd time, decided to make serious rate changes besides enhancing the composition scheme for Small and Medium Enterprises. The annual turnover limit to be eligible for the composition scheme is now Rs 1.5 crores.

The change has left just 50 items under the high tax rate of 28%. The new tax rates also give relief to the hotel industry where the new tax rates for low tier hotels is set at 5%.

The GST has a four-tier structure with 28%, 18%, 12% and 5%. As per the new rates, some commodities like coir ropes and finished leather will have no taxes.

Revenue trends

It is time for the officials to estimate the revenue impact of GST, be it for the initial months. Already, the center has made compensation to states for the initial months. But Finance Minister Arun Jaitley observed that the revenue impact of the GST is difficult to assess from the first four month’s trend.

The fresh reduction of major items will certainly produce revenue loss effect. But the change was inevitable because the government was forced to make it in the context of widespread criticism. High rates set on commodities that are dedicatedly produced by the informal sector doesn’t have any rational. Similarly, high rates on the hotel industry also shows that the tax administration wing had only weak thinking about the rate spread among various goods and services.

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