GST to make services costly

Even as the government appears set for a showdown on the GST Bill later this week, experts feel the new indirect tax regime will make almost all services costlier by 2.5 to 3.5 per cent.

According to reports, the government has listed the GST Bill for discussion this week. In all probability, it could accept the rates suggested by a panel headed by chief economic adviser Arvind Subramanian. The panel on Friday had recommended a standard GST rate between 17 and 18 per cent.

Since fixing the GST rate at 18 per cent was a key demand of the main Opposition Congress, whose support is crucial for the passing the Bill in the Rajya Sabha, the government may accept the rate recommended by the Subramanian panel.

While arguing that the GST will be good for the economy, experts said that people may have to shell out more for services as the GST rate is more than the current service tax, which is just 14.5 per cent.

“If the standard GST is rate is fixed at 18 per cent, it could lead to a small increase in taxes paid for services as we currently pay only 14.5 per cent tax on services,” Ms Anita Rastogi, partner, indirect tax, PwC India, told this correspondent.

Services which will be taxed more include telephone bills, restaurants, financial solutions, banking, air travel, healthcare, lodging, laundry, gym, etc.

Consumers will end up paying more for goods in sectors which are availing concessional VAT rates and the goods manufactured by small companies which do not come under the purview of excise duty.

“The GST will have three rates — concessional rate, standard rate, and luxury rate. Currently some sectors enjoy the concessional rate. With the introduction of GST, these sectors will lose the advantage. So they have to plead with the government for a concessional rate,” Ms Rastogi explained.

The Subramanian panel has recommended the concessional rate at 12 per cent, which is way above the current rates of zero to five per cent which some sectors enjoy.

Currently, tax is not levied on aids used by handicapped persons, glass or plastic bangles, condoms, firewood, khadi, salt, etc. The manufacturers of basic necessity goods are taxed at four to five per cent. All these products may be taxed at the only concessional rate of 12 per cent — leading to an inflationary effect of eight to 12 per cent in these sectors.

The prices of jewellery and bullion also could increase under the GST regime if the government accepts the upper limit of the 2-6 per cent rate suggested by the panel. Currently, one to two per cent VAT rate is applied for precious stones, precious metals like silver, gold and platinum, bullions, jewellery, etc.