GST: 5% for gold, 12-18% for biscuits; no exemption for handicrafts likely

The Centre is likely to propose two rates for biscuits, depending on prices, at the goods and services tax (GST) Council meeting on Saturday. It would also make a case to tax gold at 5 per cent. 

For biscuits priced at Rs 100 a kg or more, the Centre might propose a GST rate of 18 per cent. Those priced less could be slotted in the 12 per cent slab.

At present, biscuits in the second category are not taxed by the Centre, but have a 4.5-14.5 per cent value-added tax, depending on the state.

Biscuit makers are opposing higher taxes. Parle-G, which produces popular glucose biscuits, wants it to be in the lowest tax slab — 5 per cent. They argue it is consumed by the poor and distributed at anganwadi centres.  

On Saturday, the Council, chaired by Union Finance Minister (FM) Arun Jaitley and comprising FMs of states or their representatives, will decide on the rates for seven goods — biscuits, gold, textiles, handicrafts, footwear, bidis and agricultural implements. The final call on the fitment of rates might be a political one, but some petitioners to the Council are already giving it a political tinge.

For instance, Hindustan Unilever (HUL), the maker of Surf Excel, Rin, Vim and Wheel, has pitched for a lower GST rate, citing Prime Minister Narendra Modi’s Swachh Bharat campaign.

HUL has argued that a 28 per cent tax on detergents — used to clean toilets — was against Swachh Bharat. 

At its previous meeting in Srinagar earlier this month, the GST Council cleared rates for 1,211 goods and 500 services.
On the demand for a low GST rate for biscuits, an official said the Council would look at the current tax incidence before deciding on it. Experts claim there should be a third category — of biscuits priced at Rs 500 per kg. These should be taxed at 28 per cent, said M S Mani, senior director, Deloitte. 

“Low-price-high-nutrition biscuits should be taxed at five per cent, those priced between Rs 100 a kg and Rs 500 a kg at 12 or 18 per cent, and those priced higher at 28 per cent,” he said.

Mani added, “On a flight, three biscuits are sold for Rs 150. If a person can afford that, they should pay a higher tax.”

HUL’s demand would be considered under the light of the current incidence of tax.

“They want an 18 per cent tax, if not lower,” said a government official, adding that at present detergents attracted a tax of 28 per cent.

The GST might spell doom for tax exemption for handicrafts, rising in some cases to even 28 per cent, if the Council agrees to the Centre’s proposal.

This might be a blow for Jammu and Kashmir and some states in the Northeast, which handcrafts is a big employer. At present there is no central tax on handicrafts; some states also exempt it for levy.

The Center is also likely to propose there should be no distinction between handmade and machine-made items. “For instance, a machine-made shawl is priced at Rs 500 and a handmade one at Rs 5,000. If a person can shell out so much for a handmade item, they might as well pay a higher tax on it,” said an official.

The fitment committee has also proposed to tax handmade furniture at 28 per cent.

The official quoted above said it was difficult to specify if a piece of furniture was handmade. “Fakes are often sold under the guise of handmade,” he said.

According to the proposal, if marble was taxed at 28 per cent, handicraft made from it should also be taxed at the same rate. “Similarly, if bamboo is taxed at 18 per cent, handicrafts made from it should also be taxed at the same rate,” the official said.

Mani of Deloitte said taxing handicraft at same rate as the material would avoid classification disputes.

The Centre is also likely press for a 5 per cent tax on gold as it believes it is not for mass consumption or lower income groups. Currently, it attracts an excise duty of 1 per cent and VAT of about 1 per cent.

“Although the tax incidence on gold will go up, the positive is there would be no distinct slab for it, keeping the four-tier GST rate structure intact,” said Mani of Deloitte. A 2-3 per cent rate would have destroyed the GST structure, he added.

Industry’s demands
  • HUL wants detergents to be taxed at 18% instead of 28% in the spirit of Swachh Bharat as it is also used to clean toilets
  • Low price high-nutrition biscuit companies want their products to be taxed at 5%

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