GST to be less regressive with lower tax band at 5%: Experts

Tax costs might even go down for commodities to be taxed at 5% provided the credits on procurements are fully allowed, they say

A zero tax on daily necessities as well as lower rate of 5 per cent for items of mass consumption will make the new Goods and Services Tax regime, to be rolled out from April next year, less regressive, tax experts said.

The four rate structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent is on expected lines, they said.

While the goods will have a multiple rate structure, no clarity is provided on rates applicable to services, said Prashant Deshpande of Deloitte Haskins & Sells. "Hopefully there will be a single rate structure."

Sandeep Chilana of Shardul Amarchand Mangaldas said while the present approach is a departure from international practice of single GST rate, this collaborative and consultative approach should successfully address the peculiar social, political and economic complexities in India.

Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP said though zero rating of necessities is a welcome news, the actual benefit to consumer will depend on the items included in this category.

"Limiting the zero rating to food grains or agri products may not lead to any significant reduction on tax costs for the consumers," he said. "Lower rate of 5 per cent for items of mass consumption along with zero rated tax structure for essential commodities would make GST less regressive and pocket friendly for common man."

Also, tax costs might even go down for commodities to be taxed at 5 per cent provided the credits on procurements are fully allowed.

While the lists are yet to be rolled out by the GST Council, all essential commodities and services, including education and health care should feature in the list of special concessional rate of 5 per cent (if not zero rated).

"The inflationary impact on standard rated commodities should be minimal but services may become dearer by getting pushed to 18 per cent slab," he said.

ClearTax.Com CEO & Founder Archit Gupta said a lower rate could result in wider coverage which is the primary objective of GST. A lower rate could also lead to more spending hence a buoyant economy, leading to a beneficial environment for business.

Deshpande said in lowering the rate on common use items from expected 6 per cent to revised rate of 5 per cent, the interests of common man seem to have played a key role. It would be interesting to know what the government deems as common use items.

Krishan Arora of Grant Thornton India said while the consensus on rate structure among the Centre and the states seems to be a step closer towards timely implementation of GST, the essence of the multiple split tax rates will need to pass the test of industry acceptance on grounds of revenue neutrality and zero cascading across sectors specially goods falling in the 28 per cent bracket.