GST Council hikes tax on caffeinated beverages, cuts rates on hotel tariffs. (October 7, 2019)
PANAJI: The Goods and Services Tax (GST) Council has cut taxes on hotel accommodation, outdoor catering, cut and polished semi-precious stones and lowered cess on passenger vehicles of up to 4,000-mm length carrying 10-13 people, but left the rates unchanged for larger automobiles and biscuits.
The council also removed the requirement to file returns for two years for small taxpayers, and raised the producer levy on caffeinated beverages to 28% from 18% now while also imposing a cess on it.
“Several decisions have been taken with the broader principle of making the economy more vibrant,” finance minister Nirmala Sitharaman, who is also the chairman of the GST Council, said after an eight-hour meeting on Friday in Goa. The new tax rates come into effect from October 1, she said.
Three government officials attending the meeting said the proposal to cut GST rates on automobiles in general and biscuits was not discussed. The council accepted the suggestion of the fitment committee, one of the officials said. The issue of tax rates on lotteries has again been referred back to the group of ministers.
Sitharaman said the council had taken steps to promote hospitality and tourism. She said this was in line with Prime Minister Narendra Modi’s Red Fort speech to accord priority to the tourism industry.
The council rejigged tax rates for hotels to help achieve the targeted expansion in the tourism industry. Hotels with room tariffs of up to Rs 1,000 need not pay any GST. For those with tariffs of Rs 1,001-7,500, the tax will be 12%, and for those offering rooms at more than Rs 7,500 a night, the levy will be 18%.
The council not only reduced the rates, but also rejigged the slabs. Earlier, room tariffs of Rs 1,001-2,500 attracted a rate of 12%; Rs 2,500-7,500 attracted an 18% rate, and those costing above Rs 7,500 paid tax at 28%. Outdoor catering will now pay 5% in taxes instead of 18%.
“Reduction in tax from the peak rate of 28% to 18% for hotels having tariff of more than Rs 7,500 and from 18% to 12% for hotels having tariff less than Rs 7,500 should give a boost to the tourism industry,” said Pratik Jain, national indirect taxes leader, PwC.
However, from a policy standpoint, it is better to not link the rate of tax with price points, Jain said. The GST council also cut the tax rate on job work for engineering services to 12% from 18% and on diamond supply to 1.5% from 5%.
TIn a relief for the IT and ITeS sectors, the council has approved exemptions on outsourcing. It has exempted pharma companies that carry out specific research and development for foreign companies from GST.
“The call has been taken for simplification,” Sitharaman said. The council raised tax on caffeinated beverages to 28% from 12% now and imposed a 12% cess. GST was also increased on railway wagons to 12% from 5% to address the issue of accumulation of input tax credit. It also restricted the refund of compensation cess on tobacco.
With the GST on caffeinated drinks up to 28% from 18%, prices of Red Bull, Coca-Cola’s Monster and Thums Up Charged, and PepsiCo’s Sting could increase increme ..
Thums Up Charged, launched mid-2018, has about 150 parts per million caffeine content, double that of the original variant, and it would be the most affected by the GST increase, the official said. In a major relief on the compliance front, the council allowed waiver from filing of return to small and medium enterprises, with an annual turnover of up to Rs 2 crore, under the composition scheme.
It also deferred the implementation of the new return form to April 1, 2020.
“The annual return compliance waiver until Rs 2 crore turnover would be quite an aid from an ease of compliance perspective for small businesses,” said Abhishek Jain, tax partner, EY. Sitharaman said the council has also asked the group of ministers to meet soon.