Srinagar, May 19 (IANS) In a move expected to bring prices down from the current levels, the Goods and Services Tax (GST) Council on Friday decided on a four-slab tax rate for services along with the novel concept of input credit for goods used.
The Council concluded its two-day meeting here with the decision to apply the same four tax rate slabs for services as for goods, but exempted healthcare and educational services from the purview of the GST.
However, no consensus could be reached on the rate to apply on gold as well as beedi. The Council will meet again on June 3 in New Delhi for a decision in this regard.
Briefing reporters here following the meeting, Union Finance Minister Arun Jaitley said that under GST, services will get the benefit of input tax credit for the goods used, effectively making the real incidence of taxation lower than the headline taxation rate.
He said that while "luxury services" would attract the highest rate of 28 per cent, health and education services would be exempt categories.
Jaitley said there would be a 5 per cent tax on carriage of goods by rail, road and air transport services because their main input is petroleum.
Work contracts currently attract central tax at 6 per cent, while state taxes vary between 1-5 per cent, but no input credit is available for these services, the Minister noted.
"Most of the inputs for work contracts... cement, steel are taxed at 28 per cent," he said.
"The uniform GST will be at 12 per cent, while the entire credit inputs will now be available and, thus the level of taxes will come down below the present level," he added.
"Those paying service tax will not be able to take benefit of input credit as petroleum is not in GST," he said.
IT, telecom and financial services will be taxed at the rate of 18 per cent.
While five-star hotel services will be taxed at the highest 28 per cent, restaurants with a turnover of Rs 50 lakh and less would be levied at 5 per cent.
"Non-air conditioned restaurants will have 12 per cent, while air-conditioned restaurants will have a service tax of 18 per cent," Jaitley said.
"Those restaurants located inside 5-star hotels will have same service tax as applicable to the 5-star hotels," he added.
He also said that entertainment tax will be merged with the service tax at 28 per cent.
Hotels, gambling, race club betting and cinema will all be levied GST at 28 per cent.
"The net effect of GST will not be inflationary. There is a set of exemptions for services... we are grandfathering most of the existing exemptions because we don't want any adverse impact of taxation in those areas," Jaitley said.
"Once input credit starts, it will have a positive impact," he added.
Speaking to reporters after the meeting, Kerala Finance Minister Thomas Isaac said that "not in a single case has there been an increase in taxes from before".
The Council on Thursday approved the tax rates for 1,211 items, of which 7 per cent will be exempted, 14 per cent will be in the 5 per cent slab, 17 per cent in the 12 per cent category, 43 per cent in the 18 per cent segment, while 19 per cent of goods will go into the top tax bracket of 28 per cent.
Thus an overwhelming 81 per cent of goods will attract tax of 18 per cent or below. Only 19 per cent of items will be taxed at the highest rate of 28 per cent.
Jaitley said most of the work for rollout of GST from July 1 have been completed.
"Six items still have to be decided and we need more time for discussions," he added referring to the 6 categories of goods.
Reacting to the announcements, industry said it may increase taxes for some stakeholders, but hoped to get benefits through the input credit system.
"Some of the key areas which would be discussed on June 3 would include GST rates for bio-diesel, beedi, footwear, textiles, agricultural implements and gold," said Rajeev Dimri, Leader Indirect Tax, BMR & Associates in a statement here.
Given that consensus is still elusive on the fitment of some items, Taxmann.com Senior Consultant V.S Datey said: "Thus the chances of introducing GST by July 1 appears doubtful."
Rating agency ICRA's Senior Group Vice President Subrata Ray said the prices of relatively price sensitive small cars may increase marginally post GST, while original equipment manufacturers would pass on the benefit of lower taxes to customers on bigger vehicles and SUVs.
"GST rates are likely to be almost neutral for the commercial vehicles and two-wheelers, and would marginally increase for three-wheelers. The automobile sector will also see some benefits by virtue of input tax credit norms," Ray said.
Sachin Menon of international accounting firm KPMG in India said the increase in the GST rate for telecom and financial services will be negative for the sector.
"Multiplicity of tax rates for services will add complexity to the compliance in GST regime," he said.
"Levying GST at the demerit rate of 28 per cent for 5 star hotels could be a dampener for the tourism sector especially in cases of business travel," he added.
CRISIL Research felt the benefits of GST on business practices and company strategies will only be seen in the medium term.