Stimulus mode

Stimulus mode

News

1. Goods and Services Tax Council has announced a reduction in the tax rates for over 85 goods.

Important Analysis

2. Reduction in Tax slabs

• On consumer durables such as television sets, washing machines and refrigerators, along with a dozen other products, have been slashed from 28% to 18%.
• This rate cut leave leaves just about 35 products, including tobacco, automobiles and cement, in the highest tax slab of the GST structure.
• The tax rate on environmentally friendly fuel cell vehicles has been reduced from 28% to 12%, and the compensation cess levied on them dropped.
• Rakhis without semi-precious stones, as well as sanitary napkins that attracted 12% GST, have been exempted from the tax
• Employment-intensive sectors such as carpets and handicrafts have been placed in lower tax slab

3. These rate cuts would be a stimulus to drive consumption ahead of the festive season.

4. It is also a sign that the government has begun the groundwork to woo voters ahead of State and parliamentary elections.

5. However these rate cuts raise two major concerns

• Firstly, since the new rates are to kick in from July 27, companies may not have enough time to rework pricing strategies and replace existing market inventory, failing which they could face anti-profiteering action.
• Secondly, members of the Council have for the first time questioned its functioning and alleged that not all of the changes and rate cuts were placed on the agenda.

6. For a rationalize tax structure Centre-States cooperation must be maintained