After having opted for multiple rates under the upcoming goods and services tax (GST) regime, India is now looking to keep variations in rates on the same types of products at a minimum to ensure that the tax structure does not get any more complicated. For example, all types of footwear or mobile phones could attract the same rate.
Single rate for one product group will bring simplicity in the structure and make implementation easier,” said a government official, adding that differing rate structures within one segment could lead to unnecessary disputes and litigation. GST is expected to be rolled out on July 1.
Globally, most regimes have a single rate. India has adopted a four-tier tax structure of 5%, 12%, 18% and 28%. The rate applicable on most products will be 18%. The highest rate has been pegged in the GST law at 40%. Many experts have said this structure will undermine the basic tenet of GST — a simple structure with at most two rates.
GST COUNCIL TO DECIDE
The GST Council now has to decide which goods and services go into which slabs. The highly anticipated tax reform is expected to lift economic growth by 1-2 percentage points by removing inter-state barriers thus slashing cost and boosting efficiency.
ONE GOOD, MULTIPLE RATES
Currently, both the value-added tax structure in states as also the central excise structure is laden with divergences in rates within a particular category. In some cases, the divergence exists in terms of value even within the same harmonised system of nomenclature (HSN) code. For example, footwear, biscuits, electric lamps, spectacles have differential rates within one HSN code under central excise. Mobiles above a certain price are liable to a higher rate in some states.
Pastries, sweet biscuits and cakes attract 6% excise duty, but for those containing chocolate or having a chocolate coating this is 12.5%. Packaged biscuits with a retail price not exceeding Rs 100 per kg are not levied any tax. While 6% excise is levied on leather footwear, other kinds attract 12.5%. In addition, there is a value-based rate as well – nil for retail prices of up to Rs 500 and 6% for Rs 500 to Rs 1,000. Similar duty differentials exist in the case of certain filaments and lamps, mobiles and spectacles frames.
The government has been bombarded with petitions, in some cases backed by lawmakers, seeking exemptions for one segment in the same product group.
While the final call rests with the GST Council, the apex decision-making body for the proposed tax regime, key stakeholders are veering round to the view that multiple rates within single product groups need to be avoided. There have been demands from sectors such as biscuits for value-based differential treatment by exempting those priced below Rs 100 a kg and tax those above it.
Experts said uniformity in structure will help keep litigation at bay. “Uniformity in rates of various products in a commodity group will keep the structure neat and free from classification disputes,” said Bipin Sapra, partner, EY.
Tax based on value or MRP (maximum retail price) of the product would unnecessarily complicate the system and the value itself would need to be revised year after year,” said Pratik Jain, leader, indirect taxes, PwC. “Having a uniform rate for a particular HSN classification is definitely a good idea… It will be simple, uniform and less litigation prone.”