GST Council doubles tax on caffeinated beverages, slashes on hotel tariffs

PTI

Panaji: Finance Minister Nirmala Sitharaman during the 37th meeting of the GST Council, in Panaji, Friday, Sept. 20. 2019.  MoS Finance Anurag Thakur and Revenue Secretary Ajay Bhushan Pandey are also seen. (PTI Photo)

Panaji: Finance Minister Nirmala Sitharaman during the 37th meeting of the GST Council, in Panaji, Friday, Sept. 20. 2019. MoS Finance Anurag Thakur and Revenue Secretary Ajay Bhushan Pandey are also seen. (PTI Photo)

The all-powerful GST Council on Friday more than doubled the tax on caffeinated beverages but slashed the same on hotel tariffs and some goods with a view to addressing sectoral concerns in a slowing economy.

The tax changes came on a day the government announced big bang reduction in corporate tax rates to boost private investments and pull the economy out of a six-year low growth and a 45-year high unemployment rate.

The GST Council, headed by Union Finance Minister Nirmala Sitharaman and having representatives of all states, however, did not take a decision on cutting tax on automobiles as well as items like biscuits which had seen fall in sales on slowing consumption and demand.

Briefing reporters after the 37th meeting of the GST Council, Sitharaman said caffeinated beverages will be charged with 28 per cent tax plus a 12 per cent compensation cess in place of the current tax rate of 18 per cent.

This will bring them at par with the tax rate charged on aerated drinks.

Also, aerated drink manufacturers have been excluded from the composition scheme and restrictions placed on refund of compensation cess on tobacco products.

To boost job-creating hospitality industry and tourism, the GST (goods and services tax) on hotel rooms with tariffs of up to Rs 1,000 per night will be nil. The same for tariff of between Rs 1,001 and Rs 7,500 per night has been cut to 12 per cent from the existing 18 per cent.

Similarly, the tax on room tariff of above Rs 7,500 has been slashed to 18 per cent from the existing 28 per cent.

“There is rate reduction being offered, rate reduction on hotel accommodation service is aimed at boosting the hospitality sector… As a result, hotel services have now come under just three brackets,” she said.

Passenger vehicles of engine capacity 1,500 cc in case of diesel, 1,200 cc in case of petrol and length not exceeding 4,000 mm designed for carrying up to 9 persons attract compensation cess of 1 per cent for petrol and 3 per cent for diesel vehicle over and above the 28 per cent tax rate.

Council recommended same compensation cess rate for vehicles having these specifications (length and engine capacity) but designed for carrying more than 10 persons but up to 13 persons, she said adding presently these vehicles attract compensation cess at the rate of 15 per cent.

In all, the GST Council revised rates on 20 goods and 12 services. Sources said the changes will have “very minor” revenue implication as an increase in tax would make up for reductions.

The Council cut the GST rate on slide fasteners (zips) to 12 per cent from 18 per cent on marine fuel to 5 per cent from 18 per cent on wet grinders to 5 per cent from 12 per cent and to nil on dried tamarind and plates and cups made up of leaves/flowers/bark from current 5 per cent.

Also, the GST was cut to 0.25 per cent on cut and polished semi-precious stones from present 3 per cent.

A 5 per cent GST would be applicable on specified goods used for oil and gas exploration and production under the licensing policy.

She said import of specified defence goods not being manufactured indigenously, the supply of goods and services to FIFA for organising under-17 Women’s Football World Cup in India, and supply of goods and services to Food and Agriculture Organisation (FAO) for specified projects in India has been exempt from GST.

A uniform GST rate of 12 per cent on polypropylene/polyethylene woven and non-woven bags and sacks used for the packing of goods will be levied in place of present rates of 5 per cent/12 per cent/18 per cent, respectively.

The Council exempted fishmeal as well as pulley, wheels and other parts for agricultural machinery from GST for specified periods.

The minister said the rate changes shall be made effective from October 1.

The GST Council also took an in-principle decision to link Aadhaar with the registration of taxpayers under GST and also examine the possibility of making 12-digit unique identification number mandatory for claiming refunds.

The Council also decided to withdraw a circular in June which prescribed that the additional discount given by a company to a dealer in certain cases will be liable to GST.

Commenting on the decisions, Abhishek Jain of EY said the rate rationalisation for the hotel industry, in general, should bolster demand for this sector. “With the upcoming vacation and festive season, this was a much sought for relief by this industry especially for the premium segment hotels.”

“Aligned to this government’s agenda of deterring consumption of deleterious drinks, a significant hike in GST has been proposed on caffeinated drinks. This now brings rates on such drinks at par with aerated beverages,” he said.

Abhishek A Rastogi of Khaitan & Co said while the rate cut was expected for the automobile sector and the hotel industry, a very limited benefit has been announced so that the fiscal discipline is maintained. “The need is to identify those sectors which would lead to employment growth.”

“Taxing anything at 28 per cent is not a good sign at all. To make up the numbers, rate rationalisation is essential to merge 5 per cent and 12 per cent to perhaps 8 per cent and 12 per cent and 18 per cent to perhaps 15 per cent,” he said.

Grant Thornton India LLP’s Krishan Arora said while proposed GST rate cut is indeed a good news to promote hospitality industry, the GST Council seems to have rightly refrained from offering larger rate cuts across other demanding sectors considering the overall revenue involvement as an immediate priority.

(PTI)