GST Classification needs rationalization to boost economy
May 20, 2017

GST Classification needs rationalization to boost economy


GST Council has finalized the rates for nearly 500 services under 4 categories and fixed them at 5%, 12%, 18% and 28%. Importantly, in the goods category various commodities, including daily consumer items and essential commodities have been exempted from GST. 5% GST on coal will make electricity more affordable for the poor, farmers and small units. Healthcare and education services have been kept outside the ambit of GST. These measures will definitely provide some relief to the common man.  However, taxing essential medicines, cellular and banking and insurance services at a higher rate will definitely affect common man as all these are essential services and not luxury, said Mr. Vijay Kalantri, President, All India Association of Industries (AIAI).  


The higher GST rate of 28% should be applicable only on liquor, tobacco, cigarette and bidis rather than on various items of essential commodities such as consumer goods. Further, 28% taxes on cement and other building materials including paints will badly affect the Real Estate sector. This would be a dampener for the Construction companies and will impact the infrastructure sector adversely and also impact the economy negatively stressed AIAI. 


Higher tax rate of 28% on movie tickets has come as a major disappointment since watching movies is a source of entertainment and relaxation in today’s stressed world.  Further, if the Government allows local bodies to charge entertainment tax over and above GST, it will adversely impact film industry. The steep GST rate of 28% on hotels with tariff of above Rs 5000 will not only affect business travel but also tourism. Perhaps a lower rate would have been more reasonable added Mr. Kalantri.


AIAI feels that the companies need to take immediate steps as far as the compliance system and implementation is concerned.  With GST rationalizing/reducing cascading effect of tax, companies will have major task ahead to decide on the prices to be charged from July 01, 2017. This is unlikely to be a simple exercise and would necessitate companies to understand changes in the cost structure dependent upon multiple factors such as reduction of prices by vendors, availability of additional credits, increase in procurement rates, increase in working capital requirement, etc. The companies would therefore need realignment of business planning and the short available time would make it challenging to conduct this exercise.  The Government therefore needs to encourage and persuade companies to be GST compliant at the earliest.