Since 1st April 2017, there would be a new tax system. The VAT, Excise, Entry tax and other indirect taxes will be replaced by the one tax, the GST. The government has told the benefit of GST. But, now everyone is concerned about the outcome. Will It make our life easy? Will the tax burden come down? You, me and everyone want to know the rate of GST.
Presently, we pay service tax at the rate of 14.5%. We pay VAT @ 4% to 20%. There is excise duty from 1% to 30%. Now, we want to know whether service tax would increase further? Would some items be cheaper because of the reduced VAT and excise duty?
The GST rate is not clear now. But, the mechanism of GST rate is decided.
Recommended: Learn GST Through Question and Answers
Who will Decide the Rate of GST
The GST is a composite indirect tax. The centre and State both levy this tax. So, Who would decide the rate of GST? If centre decides the rate, the state will complain. If State decides, the centre may complain.
So, to avoid this tussle, A GST council would be formed. This council would decide the rate for GST. This council would have representatives of states and centre. There would be more member of states.
What Would be The GST Rate
The rate should Compensate Present Revenue
The GST is replacing the indirect taxes of centre and states. But, neither centre nor state would like to lose money because of this tax mechanism. So the GST rate should be enough to compensate the present indirect tax collection of states and centre.
Aggregate Rate of Indirect Tax
Currently, there is average 24-27% aggregate indirect tax on the goods. While services are taxed at the rate of 14.5%.
So we can expect the GST rate something in the middle of this. It can be 18-20%. The Congress party was insisting of the GST rate at 18%. But, states want a higher rate because they are concerned about the revenue.
Revenue Neutral Rate of GST
Some months back, The chief economic advisor Arvind Subramanian has presented a report. In this report, he reached to the average rate of 15-15.5%. This rate was considered as the revenue neutral. By adopting this rate, neither would lose the money.
The Probable GST Rate
However, Indications are for the higher rate. The finance minister Jaitley has hinted the rate of between 18-20%.
My guess is also for the 18%, As states are not prepared to take any risk. The 18% is also the rate quoted by the congress.
Types of GST Rate
After all this talk of GST rates, you may have an impression that GST would have a single rate for all the products and services. It is not true.
The GST is a single tax for the whole country. There is one rate for every product across the country. But different products may have different rates.
Tax on grains and perfume can’t be same. Tax on cigarette and cooking gas can’t be same.
Thus, the GST would have the different tax rates for different products. The numbers, we have talked above is the ‘median rate’.
The GST rates would be divided into four slabs.
1. Lower Rate for Essential Items
The rate for essential items would be less. The food items, electricity and transport may fall in this category. The rate for this slab can be around 10-12%
2. Standard Rate
This rate would be applicable for most of the items. This may come around 17-18%
3. Higher Rate For Demerit Goods
There are some items which are heavily taxed. The luxury cars, cigarettes. Pan Masala come in this category. The rate for such items can go up to 40%.
4. Rate for Services
There would be separate rates for all the services. It can be around 17-18%
The Impact of GST Rate
As you have seen there are only four GST tax slabs. Whereas, presently, the goods and services have many rates across the country. Hence, there would be some items which may fall in lower or higher tax slab. Thus, Some items may become costlier while other may become cheaper. We don’t know the exact rates for each product. But we can make some assumptions.
What Would be Costlier
Some services and items which are currently taxed at aggregate 15% may become costlier as standard rate of 17-18% may apply on them. There are items which attract low tax. These may also become costlier.
- Mobile Bill
- Bank Services
- Eating Out
- Dairy Items
- Edible Oil
- Online purchase
What Would be Cheaper
The manufactured goods would be cheaper after the GST. The aggregate tax on these goods is about 25-27%. It would certainly come down.
- Household goods
- Electrical items
- Fridge, TV, washing machines
- Oil, soaps
GST Rates Of Other Countries
There are many countries which have implemented the GST. Let us find out their GST rates. I giving you a graph from the report of Arvind Subramaniam.