How Will the New GST Rate Reductions Impact Small Businesses and Everyday Goods?

GST Rate Reductions and Compliance Easing

The Centre and states decided yesterday to lower rates on 66 goods and services—from pickles and cheaper cinema tickets to insulin and instant food mixes—and also eased the compliance burden for small businesses as they raced to be ready to launch the Goods and Services Tax (GST) from July 1. The GST Council, which met yesterday, reduced the rates for nearly half of the 133 items on which representations had been received, which included hybrid cars, sanitary napkins, telephone bills, and ships manufactured in the country.

Objective of Earlier Rates

The objective of the earlier rates was to maintain equivalence to the existing taxes, and in some other cases, the fitment had breached this equivalence principle. In others, the reduction is required because of the changing nature of the economy and changes that have occurred in consumer preference.

Council's Decision Process

Over the last three weeks, the council—comprising the Union and state Finance Ministers—had decided the rates for 1,211 goods and around 500 services and had been flooded with requests for revision. All goods and services have been put into four tax slabs of 5%, 12%, 18%, and 28% in addition to several mass-consumption items that will attract zero tax.

Changes in Composition Scheme for Small Businesses

Apart from the changes in rates, the GST Council also reworked the composition scheme for small businesses by allowing those with an annual turnover of Rs 75 lakh, instead of Rs 50 lakh earlier, to avoid any compliance burden and simply pay tax.

The decision by the Centre and states to lower GST rates on 66 items is a significant development aimed at streamlining the tax structure and reducing the compliance burden on businesses. Here are some practical insights regarding the changes made:

🔍 Rationale for Rate Changes:
- The adjustments in rates were made to align with existing taxes and address discrepancies in certain cases where equivalence was not maintained.
- Changes were also necessitated by shifts in the economy and evolving consumer preferences.

🔍 Tax Slabs and Zero Tax Items:
- Goods and services are now categorized into four tax slabs of 5, 12, 18, and 28%, with specific mass-consumption items attracting zero tax.

🔍 Impact on Small Businesses:
- Small businesses with an annual turnover of up to Rs 75 lakh can now benefit from a revised composition scheme, simplifying tax payments and reducing compliance burdens.

🔍 Next Steps for Businesses:
- Businesses need to review the revised tax rates and ensure compliance with the new structure.
- Small businesses eligible for the composition scheme should assess their turnover to determine if they qualify for the simplified tax payment option.

🔍 Preparation for GST Implementation:
- With the GST launch approaching, businesses should update their systems, train employees on the new tax structure, and align their operations with the revised rates.

These changes underscore the government's efforts to create a more efficient and taxpayer-friendly tax environment. It is essential for businesses to adapt promptly to the revised GST rates and compliance requirements to avoid any disruptions and leverage the benefits of the new tax regime.