GST to make essentials cheaper; luxury items to attract 28% tax

The roll-out of the goods and services tax (GST) on 1 July will have a negative impact on inflation with most items of mass consumption exempted from tax or being taxed at the lowest rate, significantly reducing the chances of prices going up.

Items of common man's consumption such as cereals, foodgrain, milk and jaggery will be wholly exempt from GST, while sugar, tea, coffee, edible oil and coal will be taxed at 5 per cent. Daily use items under the manufactured category such as hair oil, toothpaste and soap will be taxed at 18 per cent under GST, against 28 per cent at present.

On the first day of a two-day meeting in Srinagar, the GST Council finalised the fitment into tax slabs of most of the 1,211 items under the four-digit HSN (Harmonized System of Nomenclature) code.

Luxury cars will attract 28 per cent GST plus a cess of 15 per cent. Small petrol cars will be taxed at 28 per cent plus 1 per cent cess while small diesel cars will bear a 28 per cent tax plus 3 per cent cess.

Consumer durables, which face a total tax of about 32 per cent now, will be in the 28 per cent slab.

All chemicals and intermediate goods will be in the 18 per cent slab.

''The tax has not increased on any commodity and there has been a reduction in the tax on many commodities as the cascading effect has reduced,'' said union finance minister Arun Jaitley, who chairs the council.

"In case of some goods we have deliberately brought down tax. A number of items that faced 30-31 per cent tax now have been placed in the 28 per cent and 18 per cent slabs," he said, adding that the overall impact would not be inflationary.

"We are banking on hope that under GST, evasion will be checked and buoyancy will go up," the minister said.

The council will decide on fitment of services in tax slabs and taxation of six items on Friday.

The issues in the goods category relate to taxation of gold, textiles, biodiesel and bidis, as also differential taxation of high-priced and low-priced products in the same segments such as packaged cereals, biscuits and footwear.

Some states such as Kerala have demanded a 5-per cent rate on gold, saying luxury items should attract a higher rate. Industry bodies representing footwear and biscuits have demanded that their lower-priced products be taxed at 5 per cent or exempted.

Revenue secretary Hasmukh Adhia said 81 per cent of the goods will attract tax equal to or lower than 18 per cent. "Of the 1,211 items at the four-digit harmonised system of nomenclature, 7 per cent have been exempted, 14 per cent will attract 5 per cent (tax), 17 per cent will face 12 per cent, 43 per cent 18 per cent and 19 per cent will face 28 per cent," Adhia said, adding that the overall tax burden on the average household will decline after implementation of GST.