Inverted duty structure arises when the GST
rate on raw material is higher than finished products, resulting in higher input tax credit (ITC) outgo. A registered taxpayer can claim refund of unclaimed ITC on account of higher tax on input and lower tax on output.
rate on mobile phones is 12 per cent, whereas that on phone parts and batteries is 18 per cent, resulting in an inverted tax structure, creating case of unutilised ITC and hence issuance of refunds by the government.
Mitra pointed out that any upward revision in duties, even to purportedly correct the inverted duty structure, might send a very wrong signal to the businesses as well as consumers. He suggested the sectors under consideration were very basic to the common people of India like textiles and footwear, aside from fertilizer and mobiles. Textiles and footwear are large scale employers and any negative effect on their markets may lead to serious job losses.
The GST rate on fabric is proposed to be hiked to 12 per cent from 5 per cent to correct the inverted tax structure. Fabric has a GST rate of 5 per cent, whereas different types of yarns are taxed at 12 per cent. As for shoes, those prices under Rs 1,000 are taxed at 5 per cent, while the rate of inputs like non-woven fabric and leather falls under 12 per cent slab. The rate on chemical fertilizers is proposed to be hiked from 5 per cent to 12 per cent.
“I can only hope that … in an attempt to correct one type of error made in the GST rates, we do not let loose further downturn in major job intensive sectors and the agrarian economy,” said Mitra.