One GST, but many taxes still
The GST was aimed at having a uniform rate. Even now NCR has rates different from that in Haryana, Delhi and Uttar Pradesh. This will continue. The consumer may not get any relief. He may have to actually pay a higher price
The indirect taxes are likely to come down as preparation for Goods and Services Tax (GST) regime roll-out begins. The GST in reality will not be one tax but a combination of many taxes and cess.
The rates also will not be one. The GST Council has decided on a four-slab structure — five, 12, 18 and 28 per cent. Further, there will be an additional cess of 12 to 15 per cent on luxury and sin goods, including luxury cars! “The cap on cess on demerit goods on top of peak rate of GST has been kept at 15 per cent, but effectively it will be only 12 per cent”, says Union Minister for Finance Arun Jaitley, who is also the Chairman of the GST Council.
The GST is said to bring uniformity in taxes across States. But the definition of demerit goods leaves a wide chasm. Sin tax is to be levied on goods like tobacco and alcohol.
The current taxes like excise duties, service tax, custom duty etc will be merged under Central GST (CGST). Taxes like sales tax, entertainment tax, VAT and other State taxes will be included in State GST (SGST) and inter-State deals under the Integrated GST. A compensation draft law to enable the Centre to compensate the losses for the first five years is also on the anvil.
But it would not include the very basic of the lifeline — petroleum products. It is likely to leave a wide window for the States and the Centre.
In short the indirect taxes would be around 40 per cent and on petroleum type products, not covered by GST, taxes are likely to go up. For instance, Uttar Pradesh is planning to hike it by five per cent more as it plans to waive farms loans worth about Rs27,000 crore. It may happen in other States as well, since the window for levying taxes come down.
Petroleum products may have higher levies in some States. It is likely to add to inflation when the crude prices are coming down.
The Union Government has decided to abolish 16 cesses that bring Rs65,000 crore revenue in its preparation for GST roll out. This includes Krishi Vikas and Swachch Bharat cesses.
It seems this would reduce the tax burden. In reality, it may not be so, as the new laws have enough provision to maintain the rates near the high current level to ‘neutralise the losses to the States and the Centre”.
The GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. The GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. The manufacturer or wholesaler or retailer will pay the applicable GST rate but will claim back through tax credit mechanism.
It is a consumption-based tax targeting the ‘destination’ — the final consumer. So whatever the levies at whatever the stage, it would finally burden the common man. It is not easy to presently estimate the total impact on the citizen.
The multiplicity of taxes may add to the problem of traders and industry. Finally, the rates on individual goods may not be one. If goods are traded from one State to another, the provision of inter-State tax under IGST can end up having different prices at different places.
Cigarettes, currently taxed at 53 per cent, would attract a cess rate of 15 per cent. But if cess rate of 15 per cent each is levied by the Centre and the State and, say there is also one per cent IGST, the total taxes would be around 28 plus 60 plus one per cent — that is 89 per cent.
The basic principle is to have taxes at the current level. So, if the current rate of taxation on a product is higher than the GST rate, the cess will make up the difference.
At the moment, the Government levies a different rate of tax on items such as luxury cars, high-end watches apart from tobacco. The highest proposed tax slab is likely to be equal to the difference between the current tax incidence and the highest tax slab along with a cess.
This means that there will be a separate cess on each of these items. It is likely to complicate the GST tax structure. Even gold is likely to attract a tax of four per cent
If there are six different levels of cess, it means 10 different rates of GST. The cess are supposed to be removed after five years – the period States are supposed to be compensated for their losses. But this country does not have a good record on removing cess. The lure of having more revenue also impacts decision-making.
One good aspect is that it allows the business to take credit on taxes, a new concept. It is aimed at reducing the burden. But all the same, it complicates book-keeping.
Then the taxation on cars and automobiles is likely to be more complicated at the State level. The GST was aimed at having a uniform rate. Even now NCR has rates different from that in Haryana, Delhi and Uttar Pradesh. This will continue. The consumer may not have any relief. He may have to pay a higher price for almost every good.
(The writer is a senior journalist)
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