AIR Spotlight: Revision of GST Rates

AIR Spotlight is an insightful program featured daily on the All India Radio Newsonair. In this program, many eminent panelists discuss issues of importance which can be quite helpful in IAS exam preparation. In this article, the revision of GST rates and its impact are discussed in detail.

Participants:

1. Shishir Sinha, Economic Analyst
2. Ruchika Chitravanshi, Journalist

Context

Revision of GST rates on various food items in the 47th Goods and Services Tax (GST) Council meeting held in Chandigarh.

Details

• Initially, when the GST regime was introduced, food products such as cereals, pulses, rice, curd, etc. were exempted from GST.
• The GST Council in its 47th meeting announced various rate changes intended to correct the inverted duty structure which also includes the withdrawal of GST exemption on “pre-packaged and labelled” retail packs of food items like curd, lassi, puffed rice, wheat flour, etc.
  • However, items sold loose or unlabelled shall continue to remain exempt.
• The Central Board of Indirect Taxes and Customs (CBIC) recently clarified that large packages of crucial food items such as pulses, cereals, rice, and wheat weighing over 25 kgs will not attract the 5% Goods and Services Tax (GST) that the pre-packaged and labelled commodities are subjected to.

Conditions for the levy of GST

CBIC said that there are two conditions for levying 5% GST on food items like pulses, cereals, rice and flour: 

• They have to be pre-packaged to be of a predetermined quantity and are required to bear the declarations under the provisions of the Legal Metrology Act of 2009 and relevant rules.
  • The items sold loose or unlabelled shall continue to remain exempt.
  • According to the Legal Metrology Act, a “pre-packaged commodity” means a commodity that without the buyer being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a predetermined quantity.
• Further, the sale of these items would be considered as “pre-packaged commodity” for GST levy only if they are 25 kgs or 25 litres or less. 

The need and significance of the introduction of changes in the GST rates

• These changes were introduced as a large number of shopkeepers and retailers were collecting taxes from consumers but were not paying the government.
  • With this move, the government plans to plug this revenue leakage.
• The increase in rates and the withdrawal of some exemptions are intended to address the problems of an inverted duty structure.
  • An inverted duty structure refers to a situation wherein the taxes on the final finished product are lower than the taxes on inputs thereby creating an inverse accumulation of input tax credit.
• Rationalisation of the GST is also done with an aim to induce a positive impact on revenue collection.
• Further, the practice around the world is to have minimum exemptions with the GST regime.

Concerns

• Burden on consumers: the new changes or hikes or withdrawal of exemptions are expected to increase the financial burden on the buyers as the crucial food items are going to be more expensive.
• Inflation: experts also feel that the new changes will aggravate the already increasing inflation in the country.
  • Critics also question the timing of the withdrawal of exemptions when the retail inflation of the country has crossed the 7% mark.
• Impacts packaging industry: the high rate of GST on tetra packs along with the ban on Single-Use Plastic are expected to severely impact the packaging industry.
• Encourages unorganised sector: the levy of GST on pre-packed items will encourage large-scale unorganised sectors to start selling items loosely.
• Small traders and retailers: experts say that the move will have adverse implications on the small traders and retailers who hitherto were outside the GST net and had neither obtained any GST registration nor undertaken any compliances.

To know more about the issue refer to the following article:

UPSC Exam Comprehensive News Analysis dated 24 Jul 2022

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