India set to decide services rate in GST this week

New Delhi - Fitment committee to hold first meeting to slot different services in four-tier rate structure

Tax officials of the central and state governments will hold their maiden meeting this week to evolve a formula for the tax rate to be levied on services under the Goods and Services Tax (GST) regime from July 1.
While the GST Council had previously decided on a four-tier rate structure of five, 12, 18 and 28 per cent, its fitment committee will hold its first meeting this week on slotting different services in one of the slabs, a senior official told PTI.
The task before the panel is to keep the impact of GST on inflation and prices near neutral or zero.
The fitment committee is likely to hold more meetings before the GST Council's meeting on May 18-19, where tax rates for different products and services are to be finalised to enable the rollout of the biggest tax reform.
"The fitment committee will start with deciding on tax rates on services. Since the centre alone has the power to levy service tax under the current regime, fixing of the tax rate on services would be an easier task," the official said.
The official said that most of the services where both VAT and service tax were levied would be fit around the standard rate of 18 per cent, while those on which only 12.5 per cent VAT was levied would be brought to 12 per cent.
Also services provided by transportation and logistics players would be fitted in 12 per cent bracket, while services in 9 per cent bracket could be fitted in 12 per cent, the official said. The tax rate that is closest to the present incidence of tax on a good or service will be chosen with a view to keeping the shift from the present regime of excise duty plus VAT or service tax to a new uniform GST neutral for consumers. The official said tax rates will be decided in a fashion to keep their impact on inflation as well as revenues to the government near neutral. Once tax rates on services are decided, the fitment committee will meet again after a fortnight or so to decide on tax rates on goods before a full report of the panel is put up for consideration before the GST Council in its meeting in Srinagar.
The GST Council, headed by the Union finance minister and comprising state representatives as members, would kick-start the discussion on rates in the May meeting and the final fitment would be done by June. Under the current regime, the centre has the power to levy tax on production of goods while the states have the power to levy tax on sale of goods.
In the case of inter-state sales, the centre has the power to levy a tax (the central sales tax), but the tax is collected and retained entirely by the originating states.
Revenue Secretary Hasmukh Adhia had earlier said that the centre will make a strong case to the GST Council for not touching services that are out of tax net currently, it will also pitch for keeping concessional rate for services like transport at the current level.
Currently, there are 17 items in negative list of services on which tax is not levied. On top of that there are over 60 services, like religious pilgrimage, healthcare, education, skill development and journalistic activities, which are exempt from service tax.
The official further said that once goods and services are fitted in tax brackets, the fitment committee will work out the inflation impact. While fitting an item, effort will be made to keep it at the closest possible bracket in which it is at present to keep impact on inflation at minimal.

• India