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Relief for consumers and businesses
The tax relief will cover fast moving consumer goods (FMCG), including food items, most white goods, small cars and bikes, as well as life and health insurance policies bought by individuals. Some key items like coal, apparel priced above a threshold and e-gaming have been moved to higher slabs, to mitigate the revenue hit.
Revenue implications would be around Rs 48,000 crore per annum based on the 2023-24 consumption base, revenue secretary Arvind Shrivastava said, but added that buoyancy to occur from the reforms, and compliance improvement would correct this rather soon.
The 12% and 28% rates have been abolished. The compensation cess will be scrapped by October-November.
While it has been decided in principle that the tax incidence on a clutch of sin goods (tobacco products and aerated drinks) will remain at the current level, a mechanism for this will be formulated later. These items will continue to attract the current 28%, along with the applicable cess, till the cess is removed.
States seek compensation
While states ruled by Opposition parties demanded that the compensation cess be continued, the centre hasn’t agreed to this, sources said. By October, the cess would have raised the required funds for repaying the loans taken by the Centre to make up for the shortfall in the kitty in the first five years of GST, when states enjoyed guaranteed revenue growth of 14% per annum.
Inverted duty structures that have inflated the costs of units in various sectors, including employment-intensive ones, have been corrected to a large extent too.
Amid a cyclical economic slowdown and in the face of US tariffs, the council’s decision, taken at the behest of the Union government, will be helpful to medium, small, and micro enterprises (MSMEs) and the farming sector.
The Council also approved measures to ease the burden of compliance on businesses. These include reduction of registration time for MSMEs and startups from 30 to just three days. A proposal for time- bound automated GST refunds for exporters was also cleared, sources said.
According to official estimates, the revenue loss on account of the slab rejig could be around Rs 93,000 a year, but the likely additional tax on sin goods over the 40% levy will fetch around Rs 45,000 crore extra.
The slabs reset mostly follows a principle that everyday use items and goods and services consumed by the common people ought to attract lower levies, while high-end products could be under higher rates. These norms are applied to products like garments and automobiles.
While the Council meeting was scheduled for two days, including on Wednesday, it was dispersed, with the agenda being concluded.
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Earlier in the day, finance ministers of eight Opposition-ruled states, met here and decided to press their demand that all states be compensated for the likely revenue loss from the reforms. These states are Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal.
“If the Centre agrees to compensate us for whatever loss we would incur, then we have no issues in approving the agenda,” Jharkhand finance minister Radha Krishna Kishore said after a breakfast meeting of the ministers of these states. Kishore said his state might suffer an annual revenue loss of Rs 2,000 crore due to the rate cuts, while Kerala finance minister KN Balagopal said his state might incur loss of around Rs 8,000 crore.