Will bidi and cigarettes be taxed at the same rate given the health concerns and the class of people consuming it?
Will the small packs of premium biscuits be exempted as it is the case for plain-vanilla ones?
Will all the services be taxed at 18%? Will service tax on insurance and other low yielding financial products be the same as eating out in a restaurant?
While finance minister Arun Jaitley has made it clear in Parliament that chappals (slippers) and BMW cars cannot be taxed at the same rate, the problem will arise for taxing different varieties of similar goods.
The problem now is that some of the items are taxed at different rates even though they are similar in nature.
There is pressure on the government to fix the service tax rate on financial products at 12%, a lower rate will boost financial inclusion and bolster savings
The GST regime will narrow down to just four slabs–5%, 12%, 18% and 28%.
“Some of the burning issues that need to be sorted out before India switch on to one-nation one-tax mode,” a tax official said.
The Centre and states will have to thrash out on a formula for taxing various services under the GST.
The official said that most of the services where both value added tax (VAT) and service tax were levied would be fit around the standard rate of 18%, while those on which only 12.5% VAT was levied would be brought to 12%. Also services provided by transportation and logistics players would be fitted in 12% bracket, while services in 9% bracket could be fitted in 12%, the official said.
After the Parliament passing the crucial GST bills in early April and the government hardly has 10 weeks to roll out the country’s biggest tax, the Centre and states are set to brainstorm on specific items that will come under the various slabs under the Goods and Services Tax (GST) regime, sources told Hindustan Times.
A fitment committee headed by revenue secretary Hasmukh Adhia has already deliberated on contentious issues with state officials.
The Narendra Modi government, sources say, will like to see a seamless transition to GST, which will not hurt the poor and at the same time protect the revenues of the Centre and states.
The GST council chaired by Jaitley will to scan over thousands of items that are of local importance but need to be taxed in other regions.
The fitment committee has to finalise the tax rates for individual items before the GST council’s meeting scheduled on May 18-19.
The government may broadly follow the harmonised system of nomenclature (HSN) code as it has been the case for switch over from sales tax to value added tax (VAT) regime in 2006. But there could be deviations for many items.
In the last meeting, the GST council approved rules on registration, return, payment, refund, invoice, debit and credit but they have to be altered to bring them in conformity with those provided in the GST Bills.
“The next meeting will be held on May 18-19, where besides these rules being given final approval, the rates of individual commodities will be taken up for consideration. It will be held in Srinagar,” he said.
The rates in the four-slab structure of the GST will be 5%, 12%, 18% and 28%. A cess on certain goods will also be levied to create a fund for compensating states for any revenue loss in the first five years of the new tax regime.
More than a decade in the making, the GST is expected to shore up government revenue and spur economic growth by 1-2 percentage points. The government has gone on record to state that the tax burden will be reduced, but experts say the GST will stoke inflationary trends in the initial years.