Finance Minister Nirmala Sitharaman chaired the 45th Goods and Services Tax (GST) Council meeting yesterday. The council made some important decisions about taxing food delivery services, extending concessional GST rates on drugs used in COVID treatment till December 31, leaving petroleum products outside the ambit of GST, and others. The GST committee rejected the rate change in many products (air coolers, ceiling fans, rubber, etc.), which were expected to be cut.
Petrol & Diesel
The central government was gearing up to bring petroleum under the Goods and Services Tax (GST) regime. At a time when petrol prices breached the Rs 100 mark in several parts of the country, prices would cool down if brought under GST. Currently, the center levies excise duty, states levy value-added tax (VAT) on petrol and diesel. In FY21, the central government collected Rs 3,34,894 crore from excise duty on petrol and diesel. For states, around 10% of revenue comes from VAT (on petrol and diesel).
If the GST council indeed decides to cover fuel prices under GST. Maximum 28% tax can be applied to these products. Currently, at around Rs 100 petrol price, centers and states collect Rs 50–60 tax per liter. The prices of petrol and diesel will fall to as much as Rs 60–65 per liter if they are brought under the GST regime. It is estimated that if GST is applied, states will incur an annual revenue loss of around Rs 2 lakh crore. So, the states want no discussion on bringing these products under GST. If the government collects GST of 28% on petroleum products, then only Rs 14–15 would be collected per liter against Rs 55–60.
Food Aggregators (Zomato & Swiggy)
Food delivery apps such Zomato and Swiggy will need to collect 5% of Goods and Services Tax (GST) from consumers instead of the restaurants they pick from. Currently, these companies are registered as Tax Collected at Source (TCS) in GST records.
Source: Economic Times
The revenue secretary clarified that no new tax had been announced and only the point of taxation has been changed. Customers will not be liable to pay any extra GST post the decision. The Government of India decided the change in point of contact because they felt that some restaurants were not paying their liable GST, which was leading to a loss of revenue for the government.
No GST cut on Fans, Air Coolers, Rubber, etc.
Before the meeting, the street expected a GST cut on air coolers, ceiling fans, electric iron, water purifier to 12% from 18%. Also, it was expected that GST on rubber products would be lowered to 5% from 12%. But the GST committee rejected the rate change in these products. Some other products where the GST committee rejected the rate change are cotton, auto LPG conversion kits, news-prints, lithium-ion batteries, tyres for agricultural use, Ayush products, and whole milk powder.
GST on iron, copper, aluminum, and zinc raised to 18% from 5%
GST on iron ore increased to 18% from 5% will not impact steel producers as the final product already attracts 18% GST. There will be no impact on the cost for steel producers as they will take input credit for the iron ore. For iron ore producers as well, this incremental GST will be a pass-through to the next player.
However, the increase in GST can lead to a timing mismatch for input credit and can lead to additional working capital requirements for steel producers.
Similarly, zinc, copper, and aluminum were already attracting 18% GST; hence, the increase in GST on ores will not impact the producers in any materialistic way.
Other Important Updates from the Meeting
-The GST Council decided to increase GST on footwear costing less than Rs. 1,000, as well as ready-made garments and fabrics, to 12% from 5%. However, considering the impact of the pandemic on household income, the council has decided to increase the GST from January 2022.
-GST on railway locomotives and parts increased to 18%.
-To increase domestic manufacturing, 12% GST is recommended on specified energy devices.
-All kinds of pens and their parts are to be taxed at 18% to correct inversion.
-Airports and other goods imported on lease to be exempted from double taxation. IGST is exempted, and this applies to lessors located in SEZs too.
-National permit fee charged by states for goods carriers exempted from GST.
-GST rates on biodiesel for blending with diesel were reduced to 5%.
-Transport of exported goods by vessels and air exemption from GST by another year.
-GST rate on seven lifesaving medicines reduced to 5% from 12%.
-Costly and critical drugs, such as Zolgensma and Viltespa, are exempted from GST.
-Drugs suggested by the Health Ministry for treating muscular atrophy and imported for personal use are exempted.
-GST relief for COVID-19 drugs Amphotericin-B, Remdesivir, and Tocilizumab and anticoagulants like Heparin till December.
- GST on carbonated fruit beverages raised to 40% from 12%. Varun Beverages (VBL) does have these products in its product mix, but only two products are there. These two, Nimbooz Masala Soda and Dew Icefall, form just around 1% of volume, and that’s why the hike in GST will not impact VBL. (Disclaimer: it is not advice to buy/sell/hold VBL)
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