The high-powered Goods and Services Tax (GST) Council on Friday announced tax reduction for hotels, and outdoor catering. No relief, however, was announced for the auto sector despite a huge demand for a rate cut amid worsening sales performance. The GST Council had earlier said that such a move would lead to huge revenue losses for the states as well as the Centre.
"Several decisions have been taken to promote tourism," Finance Minister Nirmala Sitharaman said at the press briefing after the GST Council meet. The GST on hotel tariff of more than Rs 7,500 has been reduced to 18 per cent from the current 28 per cent. Those with tariff below Rs 7,500 will be taxed 12 per cent and those with tariff of up to Rs 1,000 will not be taxed.
On outdoor catering in instiutions with daily tariff of Rs 7,500 or more, GST has been reduced to 5 per cent from the earlier 18 per cent but without the option to avail input tax credit. The rate shall be mandatory for all kinds of catering. Meanwhile, indoor catering in premises in similar establishments shall remain at 18 per cent with input tax credit.
In the meeting today, the GST Council also hiked the tax rate on caffeinated drinks as they have a negative impact on health. For caffeinated drinks, the GST Council has hiked tax rates to 28 per cent, from the earlier 18 per cent. An additional cess of 12 per cent has also been imposed on such beverages. With the GST collection dipping to less than Rs 1 lakh crore mark last month, the move could help the Centre increase its revenue.
This move will bring caffeinated drinks at par with the tax rate charged on aerated drinks. Also, aerated drink manufacturers have been excluded from the composition scheme and restrictions placed on refund of compensation cess on tobacco products.
Passenger vehicles, measuring 4,000mm in length, with 1500cc diesel engine or 1200 cc petrol and seating capacity up to 9 persons will attract compensation cess of 3 per cent and 1 per cent, respectively. The GST Council recommended same compensation cess rate for vehicles with similar specifications but designed for carrying 10 to 13 persons. Presently, these vehicles attract compensation cess at the rate of 15 per cent.
The GST Council also exempeted imports of specified defence goods not being manufactured indigenously from GST up to 2024. Also, goods and services supplied to FIFA and other specified entities for U17 Women's World Cup in India have also been exempted from GST.
The GST Council also reduced GST rate on supply of job work services in relation to diamonds from 5 per cent to 1.5 per cent. Tax levied on cut and polished semi-precious stones has also been reduced from 3 per cent to 0.25 per cent.
In all, the GST Council revised rates on 20 goods and 12 services. FM Sitharaman said the rate changes shall be made effective from October 1, 2019.
"The outcome of the GST Council's meeting today is almost perverse in comparison to the income tax rate cut handed out earlier today to Corporate India. Minor rejigging of the tax slabs for a handful of items has been carried out; ostensibly for maintaining legislative stability. However, the recommendations of the fitment committee appear to be dictated by concerns of revenue shortfall. Similarly the extension of the compliance deadlines once again doesn't augur well. GST Version 2 which required a consolidated relook at the tax slabs as well as compliance modalities continues to remain an elusive reality," said Mekhla Anand, Partner, Cyril Amarchand Mangaldas, on outcome of GST Council meeting.
The GST Council's fitment committee had earlier rejected the proposal to reduce tax on about 200 items, including automobiles, footwear, biscuits, TVs, chemical fertilizers, etc. The panel had also said the GST cut for the auto sector could not be done as it would lead to huge revenue hit for the state as well as Centre governments. "The revenue implication of the move (auto sector) is very high. Who will bear the revenue loss of Rs 40,000-45,000 crore? Unless GST revenue stabilises, it is difficult to agree on this proposal," Bihar Deputy Chief Minister Sushil Kumar Modi, who is also a GST Council member, earlier told Business Today.
Though the Centre didn't give any reprieve to the ailing auto sector, the FM earlier today announced a major reduction of about 5 per cent in the corporate tax for domestic companies. The current corporate tax rate is 30 per cent, which has now been brought down to 22 per cent but the effective tax rate will stand at 25.17 per cent, including cess and surcharge.