The current situation of the Indian economy is dismal. The central and state governments find themselves in a fix as actual GST revenues this year did not reach its target revenue. The central government budget estimate was INR 5,26,000 crores from April to November 2019. Their actual CGST collection stood at INR 3,28,365 crores.
There was a positive outlook on the new GST tax policy due to the introduction of a simplified tax system. Taxes were only collected on consumption, thus boosting possibilities for growth in businesses. The new system removed other indirect taxes, duties, and charges. This has now come at the cost of lower government revenues.
To counter this, now, different GST product areas are under review by the GST Council for possible rate hikes in 2020. State governments and different groups are pushing proposals for select products to see tax rate hikes. If you do sell these products, you can expect it to impact your revenues from sales and lead to reduced working capital. To make up for that, you can avail a Bajaj Finserv Business Loan on Finserv MARKETS. You can also get personalized start-up or MSME business loans to cater to the specific needs of your business.
Here’s a list of product areas that we can expect a tax hike in the near future.
1 – Tobacco
Public health groups are pushing proposals urging GST Council members to increase compensation cess by 125% on all tobacco products. Tobacco products will be taxed at 28% as its position in the highest GST product area is maintained. The groups argue that increased compensation cess can help the central government earn additional revenues of INR 3 billion. This will make up the current deficit in actual GST collections. Health economists and public experts want an increased compensation cess up to ₹5,463 per 1000 sticks on all cigarettes to reduce consumption by 10%.
2 – Personal Care Items
Personal care items like deodorants, shampoos, sunscreen, dye, and shaving products are currently in the 28% GST tax slabs. These fall under the luxury items list and this product slab is under review to see a hike in tax rates. Luxury items, in particular, could see either a higher tax rate or increased compensation cess.
3 – Household appliances
We know household appliances such as washing machines, vacuum cleaners, and dishwashers are already very expensive. They currently fall under the 28% tax slab which is the highest. But this product area could see either a hiked up GST rate or increased compensation cess. Like tobacco and personal care items, household appliances are likely to be affected by an increased GST rate rather than compensation cess as they fall under the luxury items product slab.
4 – Rail and Economy Class Air Tickets
Rail and economy class air tickets are currently in the 5% GST tax slab. The GST Council is reviewing the possibility of bumping this rate up to 6% to boost revenues. This is to achieve their aim of combating the shortfall they are experiencing at the moment. The government’s target for GST collections is INR 1.18 lakh crores and at the moment the 5% slab contributes 5% to those collections. Boosting it to 6% may help the government reach its target.
5 – Tea and Coffee
Tea and coffee are currently in the 5% GST tax slab. As mentioned, the council is looking into possibly increasing the rate to 6%. The main effect would just be an increased GST rate rather than additional cess levies. In October, producers of caffeinated beverages, mainly soft drinks, saw an increased producer levy from 18% to 28% on top of a 12% cess.
6 – Frozen vegetables
Frozen vegetables are currently in the 5% GST Product Area, which could be increased to 6%. The main effect would just be an increased GST rate rather than additional cess levies.
7 – Education
Currently, education is part of the Exempted GST Product Area taxed at nil. As the government looks into taxing low-tax or exempted product areas, education will be a service that could see a 5% GST rate. However, this is a levy of taxes, only restricted to private education rather than public education, both of which are currently in the zero tax slab.
8 – Healthcare
Same as the position of education, healthcare is part of an Exempted GST Product Area with no tax. Since the government is looking into taxing low-tax or exempted product areas, healthcare will be a service that could see a 5% GST rate. However, taxes will only be levied on private healthcare rather than public healthcare, both of which are currently in the zero tax slab.
9 – Fresh fruits and vegetables
At the moment, fresh fruits are part of the exempted GST tax slab with nil taxes. However, considering the fact that they are looking into implementing tax rates on this tax slab, state GST officials are suggesting that tax rates be levied on items that attract nil GST rates to boost revenues. The likelihood of tax implementation will be but you should budget for the additional cost of taxes to be on the safer side.
10 – Fresh meats
Like fresh fruits and vegetables, fresh meats are part of the exempted GST tax slab with nil taxes. But with careful consideration on the importance of each meat, select products will have an added tax rate.
It is best that businesses expect lower revenues on products that would have a hike in GST rates, additional cess, and removal of exemptions. If this reduces your working capital, you can avail a business loan on Finserv MARKETS to get additional finances to grow your business. With the Bajaj Finserv Business Loan on Finserv MARKETS, you can borrow up to INR 30 lakhs with flexible repayment tenures between 12 to 60 months. You can easily pay the loan off by paying interest only on the amount you use.
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