Mobile phones to get costlier as GST rate hiked to 18% from 12%

Finance Minister Nirmala Sitharaman and Finance Secretary A B Pandey at the GST Council meeting on Saturday (Photo: PTI)
The Goods and Services Tax (GST) Council on Saturday announced a hike in the tax rate on mobile phones and specified parts to 18 per cent from the next month, from the existing 12 per cent, to correct the inverted duty structure. 

It, however, deferred the decision on hiking rates on three other items — footwear, textiles, and fertilisers — which was recommended by the fitment committee of officers to correct the system of having higher duties on inputs than on the final products.

“If there is a need to calibrate the rates on these items, we will take up the issue in one of the future meetings,” Finance Minister Nirmala Sitharaman, who chaired the meeting, told reporters.

West Bengal Finance Minister Amit Mitra, who had urged the Council to not hike the rates on these items, said, “Timing is the key. When you have the coronavirus issue and growth slowdown, what sense does it make in hiking the GST rates on items like these?”


Mitra, who did not attend the meeting because of health reasons, said his West Bengal colleague raised the issue and got support from all states, barring one or two. “Some BJP states also supported. Tamil Nadu, Maharashtra, all have textile industries. First they deferred (rate hikes on) all items, but after lunch they said they could raise it on mobile phones,” Mitra said.

Responding to a query whether prices of mobile phones would rise after this decision, Finance Secretary A B Pandey said the move was aimed at correcting the inverted duty structure, which was blocking refunds of companies. “I don't believe that prices would rise by 6 per cent,” he said. 

The Council, meanwhile, reduced the GST rate on maintenance, repair and overhaul services of aircraft to 5 per cent from 18 per cent. This would help in setting up these facilities in India, Sitharaman said. 

It also brought parity in handmade and machine-made matchsticks by imposing a GST rate of 12 per cent on them. 

At present, hand-made stick box attracts 5 per cent GST and machine-made 18 per cent. 

Correcting GSTN system

The Council decided that it would convey to Infosys Chairman Nandan Nilekani that the GSTN portal be rectified and made better-equipped to respond to challenges by July, as against January 2021 suggested by him.

Nilekani had made a  presentation to the Council on GSTN earlier in the day. He demanded additional staff and better hardware capacities, which was agreed to by the Council.

"As all are aware, we had a series of technical glitches, issues of system not being able to bear the load and when more than a lakh of people tried to access the system, the system either stalled or delayed or just did not respond," Sitharaman said. 

She said the ministry had been periodically engaging itself with Infosys in order that the system can be improved. "From the Council side, we want completely enhanced capacity, more pruned system, a leaner system of GSTN with better staff response and solution by July 2020," the minister said.

Borrowing by the Council

The Council deliberated on whether it could go for borrowing if compensation cess collections fell short of the requirement of the states. 

Sitharaman said she would have to get opinion on various legal issues, such as who would give guarantee to the borrowing, how would it be repaid, impact on the Fiscal Responsibility and Budget Management Act. After the Parliament session is over, a special session of the Council will be called on this.

So far, Rs 78,000 crore of compensation cess has been collected and states have been given over Rs 1.2 trillion, she disclosed. 

Procedural issues

The Council deferred the introduction of e-invoicing to October 1 against the earlier planned April 1. 

While there is no mention of deferring simplified new returns, officials said the existing returns would continue for a while before new ones are introduced. 

However, Cleartax CEO Archit Gupta said,"We are expecting the Council to soon share a detailed roadmap for the new GST return system and clear ambiguities that exist in the current format of new return forms."

The Council deferred the deadline for filing annual and reconciliation returns for 2018-19 by three months till June 30. It also waived the late fee for taxpayers whose annual return is up to Rs 2 crore. 

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