Making things simple isn't that simple. But that's exactly what the GST Council on Wednesday signed off to: a '2-tier' tax structure of 5% and 18% - actually, a '4-tier' one, with a 0% slab and a new 40% slab for 'sin' and luxury goods. In the process, the 'kabab mein haddi' 28% GST slab has been finally done away with.
Then-FM Arun Jaitley had announced in December 2018 that the sun would soon set on the 28% GST slab, except for luxury items. With current FM Nirmala Sitharaman at the helm of the 56th GST Council meeting, that promise has finally been met. The signal was pretty clear when PM Narendra Modi announced GoI's proposed reforms to the multi-slab GST system, probably in response to Trump tariffs, this Independence Day.
While the slabs and the goods and services will be inspected by pundits with their fingers going down the list one box at a time, this is the perfect time to reiterate the fact that empirical data from across the world points to the incontrovertible benefits of a unified single tax. So, an unambiguous directive to the bureaucracy is necessary to come up one day with just two categories: goods eligible for 0% tax, and all the rest under, say, 12%, 10% or even 5%. That means everything, except those goods and services specifically exempt.
While there is much to genuinely applaud in bringing down many products and services to 5% - especially a whole roster of healthcare goods and medicines - and to 18% for budget and mid-market goods and producers, the rather anachronistic oddity of doubling down on 'sin' taxes - this time to 40% - remains. Frankly, they make no sense and are at cross purposes with GoI's overarching policies of generating growth and creating jobs under 'Make In India'.
Hotel rooms with tariffs of less than, or equal to, ₹7,500 a day will now be taxed at 5% without ITC (input tax credit), down from 12% with ITC. The move will benefit budget and mid-market travellers. But a typical 300-room 5-star hotel generates direct employment for around 500 people, 90% of whom are waiters, housekeeping staff, front desk and concierge staff, besides cooks, chefs, managers, and financial and clerical staff. There are a host of others employed in associated services such as the spa, gift shops and swimming pool.
A luxury hotel also generates indirect employment in ancillary areas. It buys bed linen, furnishings, rugs and carpets (that are periodically replaced, generating employment in textiles), air conditioners, cutlery, electrical fittings, furniture... and consumes enormous quantities of food produce. All these generate jobs and income for farmers, construction contractors, artisans and other manufacturers. 5-star hotels generate forex by attracting rich guests and tourists to spend. It has a direct bearing on FDI. So, it's unwise to tax these hotels 'to death'.
Thankfully, this kind of warped view has been abandoned for air conditioners - GST of which has been brought down to 18% from 28%, but retained for 'racing cars' (up from 28% to 40%). Some clarifications, however, are yet to be made. The GST Council, for instance, has 'recommended to add Explanations to the definition of 'specified premises' in the context of taxability of restaurant services in order to clarify the position that a stand-alone restaurant cannot declare itself as a 'specified premises' and consequently cannot avail the option of paying GST at the rate of 18% with ITC'. So, where will air-conditioned restaurants fall? One sincerely hopes in the current 18% slab.
Luxury services create an economic ripple effect downstream, in a complex web of businesses that have symbiotic relationships reaching down to the bottom of the employment pyramid.
Also, the jump from 28% to 40% for 'motor cars and other motor vehicles principally designed for the transport of persons... including station wagons and racing cars' is retrogressive, even as the slab for other cars (petrol, CNG, diesel) has been brought down from 28% to 18%. Auto sales - high-end vehicles included - is the barometer of an economy.
One must figure out how to rev up the economy by making the rich and upper-middle class spend, and to move more people up the value chain, instead of designing a tax system that keeps these products out of the new consumer class' reach.
The low-cost airline model is successful because of the KISS - Keep It Simple, Stupid! - principle: eliminate all frills. The new GST 'reform' that kicks in from September 22 has largely KISSed many confusing tax slabs goodbye. It will ensure compliance, widen the tax net, improve ease of doing business and boost the economy.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
Then-FM Arun Jaitley had announced in December 2018 that the sun would soon set on the 28% GST slab, except for luxury items. With current FM Nirmala Sitharaman at the helm of the 56th GST Council meeting, that promise has finally been met. The signal was pretty clear when PM Narendra Modi announced GoI's proposed reforms to the multi-slab GST system, probably in response to Trump tariffs, this Independence Day.
While the slabs and the goods and services will be inspected by pundits with their fingers going down the list one box at a time, this is the perfect time to reiterate the fact that empirical data from across the world points to the incontrovertible benefits of a unified single tax. So, an unambiguous directive to the bureaucracy is necessary to come up one day with just two categories: goods eligible for 0% tax, and all the rest under, say, 12%, 10% or even 5%. That means everything, except those goods and services specifically exempt.
While there is much to genuinely applaud in bringing down many products and services to 5% - especially a whole roster of healthcare goods and medicines - and to 18% for budget and mid-market goods and producers, the rather anachronistic oddity of doubling down on 'sin' taxes - this time to 40% - remains. Frankly, they make no sense and are at cross purposes with GoI's overarching policies of generating growth and creating jobs under 'Make In India'.
Hotel rooms with tariffs of less than, or equal to, ₹7,500 a day will now be taxed at 5% without ITC (input tax credit), down from 12% with ITC. The move will benefit budget and mid-market travellers. But a typical 300-room 5-star hotel generates direct employment for around 500 people, 90% of whom are waiters, housekeeping staff, front desk and concierge staff, besides cooks, chefs, managers, and financial and clerical staff. There are a host of others employed in associated services such as the spa, gift shops and swimming pool.
A luxury hotel also generates indirect employment in ancillary areas. It buys bed linen, furnishings, rugs and carpets (that are periodically replaced, generating employment in textiles), air conditioners, cutlery, electrical fittings, furniture... and consumes enormous quantities of food produce. All these generate jobs and income for farmers, construction contractors, artisans and other manufacturers. 5-star hotels generate forex by attracting rich guests and tourists to spend. It has a direct bearing on FDI. So, it's unwise to tax these hotels 'to death'.
Thankfully, this kind of warped view has been abandoned for air conditioners - GST of which has been brought down to 18% from 28%, but retained for 'racing cars' (up from 28% to 40%). Some clarifications, however, are yet to be made. The GST Council, for instance, has 'recommended to add Explanations to the definition of 'specified premises' in the context of taxability of restaurant services in order to clarify the position that a stand-alone restaurant cannot declare itself as a 'specified premises' and consequently cannot avail the option of paying GST at the rate of 18% with ITC'. So, where will air-conditioned restaurants fall? One sincerely hopes in the current 18% slab.
Luxury services create an economic ripple effect downstream, in a complex web of businesses that have symbiotic relationships reaching down to the bottom of the employment pyramid.
Also, the jump from 28% to 40% for 'motor cars and other motor vehicles principally designed for the transport of persons... including station wagons and racing cars' is retrogressive, even as the slab for other cars (petrol, CNG, diesel) has been brought down from 28% to 18%. Auto sales - high-end vehicles included - is the barometer of an economy.
One must figure out how to rev up the economy by making the rich and upper-middle class spend, and to move more people up the value chain, instead of designing a tax system that keeps these products out of the new consumer class' reach.
The low-cost airline model is successful because of the KISS - Keep It Simple, Stupid! - principle: eliminate all frills. The new GST 'reform' that kicks in from September 22 has largely KISSed many confusing tax slabs goodbye. It will ensure compliance, widen the tax net, improve ease of doing business and boost the economy.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
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