GST Council Meeting: GST Rates For Caffeinated Beverages Hiked; Rate For Hotels Reduced

The Goods and Services Tax Council today reduced tax rate on hotel tariffs in an attempt to boost India's domestic tourism industry.

Hotel rooms wit tariff up to Rs 1,000 per night will now attract no tax. Rooms with prices over Rs 1,000 and up to Rs 7,500 will now be taxed at 12 percent from 18 percent earlier.

Hotel rooms with tariffs over Rs 7,500 a night will be taxed at 18 percent from 28 percent earlier.

Among other things, the GST Council has also increased the rate on caffeinated beverages to 28 percent with 12 percent compensation cess. The rate was 18 percent earlier.

Passenger vehicles of engine capacity 1,500 cc in diesel and 1,200 cc in petrol, designed for carrying up to 13 persons, will attract a compensation of 1 percent for petrol and 3 percent for diesel.

Earlier this rate was applicable for such vehicles carrying up to 9 persons.

A uniform rate of 12 percent will apply on such bags that are used for packaging goods.

GST rates on hotel tariffs have been reduced in an attempt to boost India's domestic tourism industry.

• Hotel tariffs above Rs. 7,500: From 28% to 18%
• Hotel tariffs from Rs. 1,000 to Rs 7,500: From 18% to 12%
• Hotel tariffs below Rs. 1,000: Nil
• Outside Catering: From 12% to 5%.

The GST rate on caffeinated beverages has been increased to 28 percent, along with a 12 percent compensation cess. The earlier rate was 18 percent.

Exemptions from GST/ IGST is being given on:

• Imports of specified defence goods not being manufactured indigenously, extended up to 2024.
• Supply of goods and services to FIFA and other specified persons for organising the U-17 FIFA Football World Cup
• Supply of goods and services to Food and Agricultural Organization (FAO) for specified projects in India.

The finance minister announced that the GST council decided on reducing the rates on these items:

• Slide fastners (zips): 18% to 12%
• Marine fuel: 18% to 5%
• Wet grinders, consisting of stone: 12% to 5%
• Dried Tamarind: 5% to Nil
• Biodegradable utensils made of leaves and bark: 5% to Nil
• Cut and polished semi precious stones: 3% to 0.25%
• Specified goods of petroleum operations undertaken under hydrocarbon exploration licensing policy: 5%

Finance Minister Nirmala Sitharman said that the discussions today were around rates, simplification of rates and meeting of group of ministers.

The GST Council today is discussing measures to reduce evasion under the new indirect tax regime even as major rate revisions have been ruled out by a panel of officers.

To check rampant misuse of input tax credit and issuance of fake invoices to reduce payment of tax, the GST Council is set to finalise a system which will restrict facility to avail input credit above a certain threshold for certain taxpayers, said a tax official speaking on condition of anonymity. A system will be put in place that will flag exorbitantly high sales made by new firms as soon as they are incorporated.

Here are the other measures the council is set to consider:

• Consider giving relief to small businesses with turnover up to Rs 2 crore from filing annual returns for 2017-18 and 2018-19. This will cover about 85 percent of the 1.39 crore total assesses.
• Consider introduction of a special composition scheme for taxpayers supplying brick kilns, sand mining activities and stone crushers with an increased rate.
• Discuss amendments in GST Laws to accommodate creation of Jammu & Kashmir and Ladakh as union territories and will also discuss the proposal moved by Kerala on introducing e-way bill system for movement of gold and precious stones.
• Deliberate on the proposal of linking new GST registration with Aadhaar and take the quarterly review of cases at National Anti-Profiteering Authority.

Ahead of the meeting, Nirmala Sitharaman announced a cut in corporate tax rate on domestic companies as the Narendra Modi-led government looks to stimulate economic growth from a six-year low.

Tax on local companies will be cut to 22 percent from 30 percent if they don’t avail exemptions or incentives from the current financial year. The provisions effecting changes in the Income Tax Act,1961, will be made through an ordinance, she said.

The effective corporate tax rate for these companies would be 25.17 percent without having to pay the minimum alternate tax at 22 percent. The new tax rates would be applicable from April 1, and the reduced tax liability will be adjusted against future tax installments.

Tata Motors yesterday exuded confidence in the government taking a positive call on the auto industry’s demand for a tax cut on vehicles at today’s GST Council meeting.

The automobile industry, which saw the steepest volume plunge in August in nearly two decades, has long been demanding lowering of GST on automobiles to 18 percent from the present 28 percent to boost demand.

“The auto industry can live with or without GST rate cut but an announcement (on whether the taxes are going to be lowered or not) is needed,” Guenter Butschek, managing director and chief executive of Tata Motors, said.

There have been demands pouring in from various sectors — from biscuits to automobiles and FMCG to hotels — to reduce tax rates in the wake of economic slowdown.

The argument propagated has been to boost the consumption and domestic demand by reducing GST rates further.

However, many of the states are of the view that it would not be tax prudent to allow GST rate reduction at this stage, as the compensation cess fund, which is utilised to compensate the states under the GST Act in case the revenue is below the targeted growth rate, has turned negative.