Prime Minister Narendra Modi says 99% goods could be taxed below 18 percent GST: All you need to know

Prime Minister Narendra Modi, on Tuesday, said he would make efforts to ensure that 99% of items are taxed at 18% or lower slab of the goods and services tax (GST). This would leave only sin or luxury items to be taxed at the highest GST rate of 28%.

Speaking at the Republic Summit in Mumbai, PM Modi said he had shared his suggestions with the GST Council, which is set to meet in New Delhi on Saturday, Dececmber 22.

Modi’s promise would require reducing tax rates on about 25 categories to 18% or lower from 28%. Currently, 39 of the around 1,378 tariff categories are taxed at 28%.

The Prime Minister said that the government was looking to simplify the tax that was launched in 2017.

“Today, we are approaching a stage where 99% items can be brought under 18%,” Modi said in his keynote speech at the summit. “…We firmly believe that GST must be as simple as possible and we are also working constantly in that direction,” Reuters reported.  

GST Council could slash rates on some goods

Commonly used items, such as air conditioners, digital cameras, and cement, might be removed from the 28% bracket of the GST when the GST Council meets on December 22 to rationalise the indirect tax further, two people with direct knowledge of the matter told BloombergQuint.

About 12-14 items, which are currently taxed at 28%, will be placed in the 18% tax slab in phases, the people said on the condition of anonymity.

It is expected that the reduction could take place in phases once revenue from GST stabilizes, as the proposed rate cut would result in the government taking a hit of over Rs 20,000 crore a year, the people said.

The council could reduce GST on items such as computer monitors of screen size up to 68 centimetres—this can be said to be in line with the tax rate cut on television sets of the same size, which was announced in July.

Additionally, the council could also consider reducing tax on power banks to 18%. States like West Bengal have sought lower GST rates on cement as it could result in a multiplier effect in the form of increased construction activity.

Opposition targets PM Modi

Modi’s announcement to lower GST rates on majority products was criticised in opposition-ruled states. Manpreet Badal, Punjab’s finance minister, said that a suo motu announcement without the approval of the GST Council seemed uncalled for.

“The PM should not make unilateral announcements like this… since even the agenda for the coming GST Council meeting is not yet finalised,” Badal said, Business Standard reported.

Experts have also raised concerns that rate cuts might not be the only solution to make the GST seamless. “Taxing nearly all items at less than or equal to 18 per cent will be challenging. Businesses also want simplicity of return filing and ease in claiming input-tax credit refunds,” said Archit Gupta, founder and chief executive officer of ClearTax, as per the Business Standard report.

Congress President Rahul Gandhi, on Thursday, took a jibe at Modi, saying that his party has jolted him “out of his slumber”. Gandhi took a swipe, saying the “PM now wants implement what he once called Congress party’s Grand Stupid Thought”, as per a PTI report.

The Congress Party has finally jolted Narendra Ji from his deep slumber on Gabbar Singh Tax.

Though still drowsy, he now wants to implement what he had earlier called the Congress Party’s, “Grand Stupid Thought”.

Better late then never Narendra Ji!— Rahul Gandhi (@RahulGandhi) December 20, 2018

Senior Congress leader P. Chidambaram, on Wednesday, said that “belated wisdom” had dawned upon the Centre.

Government says 99% of goods will be at 18 per cent GST. Belated wisdom. We should have started with 18 per cent as the standard rate.— P. Chidambaram (@PChidambaram_IN) December 19, 2018

“Having scrambled the egg needlessly when GST was introduced, Government is trying to unscramble it! Typical of NDA,” Chidambaram said in another tweet.

“BJP/NDA governance mantra is ‘Leap before you look’. Which is the reason for the damage caused by GST to businesses, especially MSMEs,” the Congress leader said further.

Elton Gomes is a staff writer at Qrius

GSTNarendra ModiP ChidambarampolicyRahul GandhiSin tax