Food items, products of daily use by common people to attract 5 pc GST rate under new reforms: Government sources

NEW DELHI: Most of the “common man items” are proposed to be moved to the lower GST slab rate of 5 per cent under the GST rationalisation initiative, government sources said on Friday, noting that the Centre will closely engage with states to build a broad-based consensus in the coming weeks.

The sources said that food items and daily use items will fall in the 5 per cent GST slab.

They said if implemented, this proposal will give a big boost to consumption and will have a positive impact on GDP.

They also said the government doesn’t require legislative changes to implement this proposal.

The proposal comes after Prime Minister Narendra Modi’s announcement today during his Independence Day speech that he will make “this Diwali, double Diwali” for the people of the country. He said people are going to get a very big gift on Diwali and the government has embarked on “big reform of GST”.

The sources said that the Centre’s proposal is based on three pillars of structural reforms, rate rationalisation and Ease of Living

The sources said the central government has proposed to scrap the current slab of 12 per cent and 28 per cent of GST rate and keep only 5 per cent and 18 per cent GST rates, government sources said on Friday.

They said as part of the initiative, 99 per cent of the 12 per cent slab are proposed to move in 5 per cent slab and 90 per cent of items in 28 per cent slab are proposed to move in the 8 per cent slab

They said that consumer goods kept in 28 per cent slab are proposed to be moved to 18 per cent slab. They also said that a new slab of 40 per cent is proposed for “sin goods” like tobacco and pan masala.

The sources said that the proposal on restructuring and new GST slabs will have marginal negative effect on GST collection.

They said the proposal has been sent to the Group of Ministers (GoM) to enable constructive and inclusive dialogue.

“This will have a big impact on reinvigorating core economic sectors like agriculture, textiles, fertilisers, renewable energy, automotive, handicrafts, healthcare, insurance, construction, transportation,” a source said.
Sources said a meeting of the GST Council is likely to be held in September-October to consider the proposal.

Referring to the pillars of structural reforms, rate rationalisation and Ease of Living, the sources said that structural reforms include correction on invested duty structure (IDS), aligning input and output tax in key sectors to eliminate IDS, supporting domestic value addition and improving liquidity specially for MSMEs. Classification issues would be resolved and there will be streamlining of tax structure on namkeen, savouries. The sources said that long-term clarity in rates will enable better business planning

Referring to rate rationalization, the sources said there will be simple tax and two-rate structure of merit and standard goods keeping focus on common people and students.

Another significant decision, the sources said, would be reduction in rate of equipment used by farmers, which will help increase production
Sources said in terms of ease of living and compliances, the reforms propose to provide registration to 95 percent of cases within three days. There is a proposal to implement pre-filled returns to reduce manual intervention.

The process would eliminate mismatch and compliance burden to multiple notices and there would be faster and automated processing of refunds for exporters and those with IDS, the sources said.

In his speech from the ramparts of Red Fort in Friday, PM Modi said the government is coming with the next generation of GST reforms.

“This Diwali, I am going to make it a double Diwali for you. This Diwali, you fellow countrymen are going to get a very big gift. In the last 8 years, we have done a big reform of GST, reduced the tax burden across the country, simplified the tax regime and after 8 years, the need of the hour is that we should review it once. We started the review by setting up a high-power committee and also held discussions with the states,” PM Modi said.

“We are coming with the next generation of GST reforms, this will be a gift for you this Diwali, taxes needed by the common man will be reduced substantially, a lot of facilities will be increased. Our MSMEs, our small entrepreneurs, will get a huge benefit. Everyday items will become very cheap and that will also give a new boost to the economy,” he added. (ANI)