Prof. (Dr.) Alok Pandey
Professor-Jindal School of Banking and Finance & Dean-Office of Career Services
O.P. Jindal Global University
The rationalization of GST rates and the long-awaited resolution of inverted duty structure has finally been approved by the Govt. of India. This brings relief to the common man as GST slab rates on most of the items and services have either been reduced to zero or brought to a lower slab rates. The most notable among them is the long-standing demand for reduction in GST rates on health and individual life insurance, ULIPs and endowment plans, including family floaters and policies for senior citizens. They all have been brought to zero percent from a mind boggling 18%. Items used by students such as maps, charts and globes and exercise books and note books also now face no tax.
A Pivotal GST Council Meeting with Mixed Signals
Most items in the list of daily essentials along with beauty and physical wellness services also will be taxed at 5%. Several essential pharmaceutical drugs and farm equipment such as tractors and drip irrigation systems will now be taxed at 5%. Moreover, freight services along with hotel rooms with tariff below Rs 7500.00 and cinema tickets below Rs 100.00 will be taxed at 5%.
Smaller automobiles, electronics and electrical goods such as TV and air conditioners and cement will now be taxed at a lower rate of 18%.
Several processes have been streamlined as well.
All this along with the recent income tax rate reduction would lead to substantial savings to the common man and may bring consumer demand back into the system. With this rationalization the issue of inverted duty structure would be addressed to a great extent. It would surely bring down classification disputes and ensure improved cash flows and better working capital management for manufacturers. We sincerely hope that the manufacturers and service providers would pass on the benefits of this key reform quickly to the end consumer.
This is an example of a big bang reform and the key to its success lies in quick implementation. However, some ticklish areas such as full removal of compensation cess, and loss of revenue to states need to be assessed further. Though the cess would be removed from the majority of products from September 22, there is still an air of uncertainty on complete removal from tobacco and related products. The states on the other hand may also face revenue losses once the GST rationalization and removal of compensation cess finally takes effect. And finally, the elephant in the room remains, i.e. the inclusion of petroleum products under the GST. Though a contentious issue, bringing it under GST may further reduce inflation and bring more relief to the common man.
About Author : Professor Alok Pandey serves as Professor at the Jindal School of Banking & Finance and Dean of the Office of Career Services at O.P. Jindal Global University, where he focuses on empowering students and expanding their career horizons. In addition, he contributes to policy and market development as Board Member of CSC e-Governance Services India Ltd. (Ministry of Electronics & IT, Government of India) and Chairman of the Index Advisory Committee at the Multi Commodity Exchange of India Ltd.
