TPS overhaul can reduce prices on dairy products, packaged foods, small cars and sustainable consumer goods
The center is preparing to deploy a major overhaul of the product and services tax regime (TPS), the new structure likely to be revealed around September or October during the 56th meeting of the TPS Council. If it is approved by the group of ministers (GOM) by the majority consensus, the renovated TPS could considerably reduce the cost of various goods and services for consumers.
As part of the proposal draft, essential items such as ghee, butter, packaged foods, fruit juices and wrapped coconut water, currently taxed at 12%, can go to GST panel at 5%. Shoes and clothing less than 1,000 ₹ are also likely to go to the rate of 5%.
The adjustment committee wrote a TPS structure at two simplified rates, to be subject to GOM on the rationalization of rates. The plan aims to replace the current multi-flab system with two primary rates, 5% and 12%, eliminating the slabs by 18% and 28% existing.
The compensation cess, which currently applies to several goods, is also offered to be deleted and replaced by a flat rate of 40%, deducted from a narrowed list of five to seven SIN goods, including tobacco and Pan Masala.
According to sources, almost 99% of goods currently imposed at 12% should go to the panel of 5%, while around 90% of the 28% category elements could increase to 18%.
“Current use and daily use elements will be in the rate of 5% of the GST,” said a source.
A drop in tax is also envisaged for small cars and two-wheelers by less than 250 cc, reducing TPS from 28% to 18%, which could stimulate a revival in these segments. Similar discounts are likely for other high tax goods such as air conditioners, televisions up to 32 inches and dishwasher. The cement industry could also benefit from a rate drop from 28% to 18%, providing potential relief of costs to manufacturing and real estate sectors.
Managers have recognized that the proposed changes, estimated by certain analysts to involve loss of income from 0.2 to 0.4% of GDP on an annualized basis, would be offset by an increase in household consumption. The wait is that the drop in prices will stimulate demand, ultimately supporting broader economic growth.
The proposals, written by the TPS adjustment committee, will be examined by the GOM, led by the deputy minister -chief of the Bihar, Samrat Choudhary, on August 20 and 21. After reaching a consensus within the GOM of seven members, the recommendations will be subject to the TPS Council for a final counterpart in mid-September.
