Centre plans fast transition to lower GST rates to aid festive buys: Source

The Union government is planning to expedite the process of aligning the systems with the new Goods and Services Tax (GST) rates, post approval of the GST Council, to ensure that the end consumers are able to gain from lower cost of products in the build-up to the upcoming festive season. It may be noted that the festive season this year begins early.

The Centre has proposed a dual rate GST structure, comprising a standard rate of 5% and 18%, aside from a 40% slab for "sin goods". The proposals have been approved by the group of ministers (GoM) on tax rationalisation and the GST Council will take it up in its meeting this week (September 3 and 4).

"Manufacturers and suppliers need to align their systems with the new rates. The government too needs to do the same. We will ensure that that we align our systems with the new rates as fast as possible after the approval of the GST Council," a top finance ministry source told Fortune India.

“The idea is to ensure that the new rates are applicable ahead of the festive buys so that the end consumer benefits amid the festive purchases,” said the source. Currently, the applicable GST rates are 0, 5%, 12%, 18% and 28%. As per the proposal, the majority of items from 12% will be shifted to the 5% slab. Similarly, the majority of items from the 28% slab will be shifted to the 18% slab.

Tax cuts are likely to lower the prices of the end products and boost consumption across sectors in the economy. Small cars and two-wheelers are likely to get a fillip.  For instance, GST on petrol cars less than four metres in length and having an engine capacity of less than 1,200 cc may come down to 18% from the current 28%. Also, GST on two-wheelers with an engine capacity of less than 350 cc may come down to 18% from 28%.

A Nomura report says GST rate rationalisation is likely to have a positive impact on tractors, which are currently taxed at 12% and could move to the 5% bracket, while ACs (28%) may benefit from a shift to 18%. “Food companies may also benefit as their tax may drop from 12% to 5%,” according to the report.