(FE)
The Goods and Services Tax (GST) Council’s resolve to minimise rate shocks will result in reduction in the nominal tax rates for a vast majority of goods. Half of the items in the Consumer Price Index (CPI) basket will be exempt from GST and another tenth will be taxed at the lowest rate of 5%. The balance CPI goods would come under either of the two standard rates of 12% or 18%, rather than the highest rate of 28%.
Though the current nominal tax rates for some CPI goods and many other mass-consumption and everyday use items like mobile phones, refrigerators, cosmetics and baked food are close to the highest GST rate of 28%, these too will likely fall under 18% GST, sources privy to the discussions in the council’s technical committee on fitment of rates told FE.
The government had iterated that the GST rate for an item will be, to the extent possible, the one that is nearest to the current rate. However, according to the sources, what the council will take into account is the real tax incidence at present rather than the nominal rate. For instance, if the nominal tax rate on an item with maximum retail price of `150 and ex-factory price of `100 is 26.5% (12.5% excise and 14% VAT), the real tax incidence on the price to the consumer could be just over 22%, as the excise duty is virtually levied on the ex-factory price, with abatement for post-manufacturing value addition.
