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GST rates revision: Mobile phones, clothes may become more expensive

The GST Council may decide to increase the current 5% tax rate on essential products (which includes fabric) and services to 6-8% at its meet on December 18. Simultaneously, the Council may hike the current 12% GST rate on mobile phones to 18%

twitter-logo BusinessToday.In        Last Updated: December 12, 2019  | 14:43 IST
GST rates revision: Mobile phones, clothes may become more expensive
The current GST rate on mobile phones is 12%, while phone parts and batteries attract an 18% tax rate, causing an inverted tax structure. Meanwhile, there is a 5% GST rate on fabric

The GST Council may hike rates on mobile phones and fabric at its meet on December 18 in its bid to shore up a shortfall in collections and pending compensation to many states.

The current GST rate on mobile phones is 12%, while phone parts and batteries attract an 18% tax rate, causing an inverted tax structure. Meanwhile, there is a 5% GST rate on fabric.

The inverted tax structure is a situation where the tax rates are higher on inputs than on final products. This leads to an enormous input tax credit outgo, resulting in huge issuance of refunds by the government.

GST Council, chaired by Finance Minister Nirmala Sitharaman may undertake the tax rate revision as a part of an exercise to rectify the inverted tax structure and bolster revenue collection.

Also Read:Big changes likely in GST rates next week; these items can get expensive

Other products which have attracted an inverted duty structure comprise fabric bags, shoes and tractors etc.

Taking the case of mobile phones, a single manufacturer had claimed a refund of nearly Rs 4,100 crore last year. Drawing attention to the problem of inverted tax structure leading to massive refunds outgo, a government official told the Business Standard that the GST Council may correct the tax rates of mobiles and fabric.

A registered taxpayer can demand a refund of unclaimed input tax credit owing to higher input tax and lower output tax.

Likewise, fabric attracts a 5% GST rate, but several categories of yarns are taxed at 12%. The government, in the beginning, did not permit fabric producers to claim input tax credit refunds, however, it later allowed them to demand refunds after GST Council's meeting in July 2018.

Also Read:Centre seeks suggestion from states to increase GST collection ahead of GST Council meet

"Input tax credit refunds should not have been allowed on fabric in the first place. It was a political call taken at that time. It should be addressed now," another official told the news daily.

The GST Council may decide to increase the current 5% tax rate on essential products (which includes fabric) and services to 6-8% at its meet on December 18.

Simultaneously, the Council may hike the current 12% GST rate on mobile phones to 18%.

Also Read:WhatsApp won't work on these phones from next year; check out list of devices

Currently, all products and services fall under four tax slabs under the GST regime - 5, 12, 18 and 28%. Restructuring the slab rates might aid the government to garner additional revenues of Rs 1,000 crore per month.

The GST Council meeting is also likely to deliberate on raising cess on some products to meet the growing need for compensation, among other issues.

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