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GST: Handicrafts May Not Remain Exempt, Biscuits Likely To Be Taxed At 18%

Bloomberg Quint |

31 May 2017

Handicrafts may no longer remain exempt from tax as a committee suggesting rates to the Goods and Services Tax (GST) Council has proposed to bring such items under the tax net, a senior finance ministry official told BloombergQuint.

Currently, the Centre does not levy any excise duty on handicrafts and some states exempt such goods.

The committee has also proposed to tax handmade furniture at the highest 28 percent tax rate, bringing it on a par with furniture. It is difficult to differentiate if an item like furniture is handmade or not, the official said requesting anonymity.

The tax rate on furniture, handmade or machine-made, should be kept the same, agreed Amit Sarkar, partner and head of indirect tax at BDO India LLP, a tax advisory. Handicrafts by definition are labour-intensive and cannot be made at a massive scale, so taxing such items at 28 percent is justified, he said.

The rate on handmade furniture might differ from other handicraft products, another finance ministry official said.

The GST Council is yet to finalise rates on biscuits, cigarettes, beedis, textile, footwear, precious metals and power-driven agricultural products. The fitment committee comprising state and central government officials is expected to propose the rates to the council, which will take a final decision in its next meeting on June 3.

Biscuits At 18%?

While the council seeks to tax branded biscuits costing less than Rs 100 per kg at 18 percent, the industry is lobbying for 12 percent to claim a tax advantage to the tune of Rs 900-1,000 crore, the first official quoted above said. Biscuit manufacturers claim that they are largely consumed by the poor, he said.

Biscuits costing less than Rs 100 per kg account for nearly half of the overall biscuit market worth Rs 35,000-40,000 crore, the official said.

Unbranded biscuits costing less than Rs 100 per kg may be taxed at 12 percent, the second official cited above said.

Currently, biscuits below Rs 100 per kg do not attract central excise, but value-added tax (VAT) in states varies from 4.5-14.5 percent, said Bipin Sapra, partner, indirect tax at EY India.

For biscuits above Rs 100 per kg, the Centre levies 6 percent excise, while VAT ranges from 6-14.5 percent, Mayank Shah, category head of biscuits at Parle Products Ltd., told BloombergQuint.

Sapra said there should be a uniform rate for both branded and unbranded biscuits. As the rate on biscuits in the pre-GST regime is considerably variable, so taxing them a lower slab will make more sense, he said.

Gold May Be Taxed At 5%

The GST Council may push for 5 percent tax on gold as it believes the yellow metal is not an item of mass consumption, and sees no merit in having a special or lower rate for the precious metal.

A special rate will complicate the rate structure, and there is no justification to tax the commodity at a lower rate, the first official quoted above said.

Kerala Finance Minister Thomas Isaac had told BloombergQuint after the GST Council’s last meeting in Srinagar that he doesn’t “see any good reason why gold should be taxed at a subsidised rate of 1-2 percent. I don't see any ethical or economic reason why gold should not be taxed at least at 5 percent”.

If gold is taxed at 5 percent, the tax incidence on imported gold will be around 15 percent (import duty of 10 percent + 5 percent GST rate), Sarkar from BDO India said.

For locally produced gold, an excise duty of 8 percent and a value added tax of 2 percent is levied in all states except Kerala, which charges VAT at 5 percent.

“By reducing the tax rate (for domestically produced gold), significant amount of value addition in gold will now get captured by better compliance,” Sarkar said.