GST Council Fixes Tax Rate For Services
GST Council finalises tax rate for services
KEY HIGHLIGHTS
Lower Tax Incidence On Transport Services Under GST, Adhia Says
Speaking to reporters, Revenue Secretary Hasmukh Adhia said the tax incidence on transport services will come down by a percent or so. The GST Council on Friday decided to fix the GST rate for most transport services including railway and air transport at the lowest possible tax rate of 5 percent, as fuel is outside the ambit of the new indirect tax regime for now.
Once petrol comes under GST's ambit, the tax rate on transport services will increase and can go up all the way to 18 percent, Adhia added. However, input tax credit can then be availed.
Business class air travel will be taxed at 12 percent, the revenue secretary added, while the rate for economy class travel has been pegged at 5 percent.
For railways, second class travel will be exempt under GST while AC passenger travel will be taxed at 5 percent. Railway freight services will also be taxed at 5 percent and input tax credit can be availed, Adhia said.
1% GST On E-Commerce Services
E-commerce companies like Flipkart and Amazon will deduct one percent as tax deducted at source from suppliers, once GST is rolled out, a government official said on the condition of anonymity. BloombergQuint had earlier reported that the Centre and states would each levy a 0.5 percent tax on e-commerce services. Together it adds up to one percent.
GST Won't Be Inflationary, Finance Minister Maintains
Indian Cultural Events Exempt From GST
Indian cultural events have been exempted from taxes, Delhi Finance Minister Manish Sisodia told BloombergQuint. Service tax will be levied on all other cultural events, including movies, if tickets are priced at more than Rs 250.
12% GST On Works Contract
Works contract – a contract of supply of both goods and services – will attract a 12 percent GST rate and get input tax credit, Jaitley said.
“A 12 percent rate for works contracts, with full input credit, is an encouraging development as it would be a simpler tax system and should reduce the cash component of the economy,” Pratik Jain, partner and leader of indirect tax at PwC said in an emailed statement.
The works contract rate is a beneficial rate because it was under the ambit of service tax earlier (15 percent). The total contribution in a works contract should not be more than 10-12 percent so this leaves plenty of room for other taxes to come In between the 4.5 percent. This should actually contribute to lowering the rates for greater volumes in housing.Rajeev Talwar, CEO, DLF
Gambling To Fall Under 28% Tax Bracket
Gambling, race-club betting and cinema will also fall under the 28 percent GST rate, the finance minister said.
Imposition of the highest GST rate is disappointing, PVR’s Chief Financial Officer Nitin Sood told BloombergQuint.
Two billion Indians watch cinema every year and we are certainly not in the same category as betting and five star hotels . We were hoping for a standard rate of 18 percent so that we could pass on the benefit to consumers in the form of ticket price reductions.NiTin Sood, CFO, PVR
GST On Gold: Decision Delayed
GST on gold will be finalised at the next meeting of the GST Council on June 3, he added. Kerala Finance Minister Thomas Isaac had earlier said some states had asked for a 5 percent tax rate on the precious metal.
Highest Tax Rate On 5-Star Hotels, Jaitley Says
The highest tax rate of 28 percent will apply for luxury hotel services, Jaitley said.
The finance minister also outlined the tax rates applicable on all hotels based on their tariffs:
- Hotels with tariff of less than Rs 1,000 per night will be exempt
- Those with a tariff between Rs 1,000 and less than Rs 2,500 will charge a tax rate of 12 percent
- Hotels charging between Rs 2,500 and less than Rs 5,000 will impose an 18 percent tax rate
- Those charging Rs 5,000 or more per night (namely 5-star hotels) will levy a tax of 28 percent
5-Star Hotels Versus Other Restaurants
The tax impact is huge, a spokesperson of JW Marriott told BloombergQuint. “This will be an additional burden on the customer.”
The distinction made for hotels, restaurants and transportation services is not in line with international practice, where an uniform rate is applied on a particular service irrespective of value or status of the business, Pratik Jain, partner and leader of indirect tax at PwC said in an emailed statement.
One was hoping that we would move away from a regime, based on status of service provider and value of service rather than nature of service itself.Pratik Jain, Partner and Leader-Indirect Tax, PwC
Transport Services To Be Taxed At Lowest Rate: Finance Minister Says
Transport services will be taxed at 5 percent, Finance Minister Arun Jaitley said at the media briefing following the GST Council meeting. Some categories specially in the railways will be exempted from taxes, he added.
Healthcare services and education will continue to remain exempt, the finance minister said.
28% Tax Rate On 5-Star Hotels
Five-star hotels will levy a tax rate of 28 percent, said a government official.
Jammu & Kashmir Will Benefit: Finance Minister Jaitley
Jammu and Kashmir will stand to benefit from GST, as it is a consuming state, and the state exchequer will earn more one the indirect tax regime has been rolled out, Union Finance Minister Arun Jaitley told reporters at the end of the GST Council meeting.
The next GST Council meeting is scheduled for June 3.
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Telecom Services May Be Taxed At 18%
Telecom services will be taxed at 18 percent, said J&K Finance Minister Haseeb Drabu. That’s an increase of 3 percent over the current rate.
“On one side the government is setting up an inter-ministerial committee for the profitability of the sector and on the other side you’re increasing rates”, said Sanjay Kapur, the former chief executive officer of Bharti Airtel. He added that the Council had missed a perfect opportunity to treat telecom as an essential service and bring the rate down below the 12 percent rate.
There was room to treat telecom as essential services and keep the rate around 12 percent than 18 percent.Sanjay Kapur, Former CEO, Bharti Airtel
The Cellular Operators Association of India had submitted to the government that any rate beyond the existing 15 percent will make telecom services more expensive for the consumer, said Rajan Mathews, director general of COAI.
It will augment the existing burden of the industry further. This is also likely slowdown the planned rollout of infrastructure across the country and will have an impact on flagship govt initiatives like Digital India, Cashless India and others.Rajan Mathews, Director General, COAI
‘Prepaid Usage Could Be Hit’
There could be a short-term disruption in the telecom sector due to increase in rates. Prepaid usage might be hit temporarily. However, after some time things will normalise.Nitin Soni, Director-Asian Corporates, Fitch Ratings
Also Read: GST: Washing And Smoking To Get Costlier
Tax Rate On Gold Not Taken Up
The GST Council did not discuss the applicable tax rate on gold, said Kerala Finance Minister Isaac.
GST On Restaurant Services
Restaurants not serving alcohol will charge a 12 percent tax rate, while those serving alcohol will levy a tax of 18 percent, said Gujarat Deputy Chief Minister Nitin Patel.
Healthcare, Education Exempt
Healthcare services and education will continue to remain exempt under the GST regime, Kerala Finance Minister Thomas Isaac told reporters after the conclusion of the Council meeting on Friday.
For healthcare, the exemption under GST is “appropriate and on expected lines”, Sangita Reddy, joint managing director of Apollo Hospitals told BloombergQuint.
Banking And Financial Services To Be Taxed At 18%
The Goods and Services Tax (GST) Council which met for the second day in Srinagar has finalised a 5-tier tax structure for services, Jammu and Kashmir Finance Minister, Haseeb Drabu told reporters on Friday.
Banking and financial services will be taxed at 18 percent, added Drabu.
The 18 percent tax rate is along expected lines, NS Venkatesh, chief financial officer at Lakshmi Vilas Bank told BloombergQuint over the phone.
We do not see this impacting our fee income. We believe whosoever is paying that (the 18 percent tax rate) can use that as an input credit to offset.NS Venkatesh, CFO, Lakshmi Vilas Bank
The sector will not see any material impact because “banks don’t normally absorb these costs and it is generally passed through”, Siddharth Purohit, senior research analyst at Angel Broking said.
It is highly likely that it will be passed on. Forex and other components of other income for banks cannot be related to service tax. So while there could be some incremental cost on the business front, it is highly likely the sector will be able to pass it on.Siddharth Purohit, Senior Research Analyst, Angel Broking
The service tax might look slightly higher but all of them are getting input tax credit for all of goods and services they use, Kerala Finance Minister Thomas Isaac told reporters. The actual incidence will be much lower that the headline number, he added.
IT Industry To Be Taxed At 18%
“GST rate of 18 percent for the IT Industry is a carefully and reasonably thought out decision,” Jagannathan Chakravarthi Narasimhan, chief financial officer of Mindtree told BloombergQuint.
There won’t be any substantial changes. Increase in rates for software services to raise cost by 3-4 percent. Though the rate of 18 percent is not very far from what was expected.Jagannathan Chakravarthi Narasimhan, CFO, Mindtree
Hybrid Cars To Cost More
Carmakers are not too happy with the GST Council’s decision to impose a 15 percent cess on hybrid vehicles, over and above the 28 percent tax that all automobiles will attract.
Tax On Goods
The GST Council had fixed the tax structure for 1,211 products on Thursday. While the tax rates on most products were left at current levels, the levy on some products such as detergent and cigarettes will rise once the indirect tax regime is rolled out.