Higher GST rate on mobiles, fabrics likely to boost revenue collection

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The goods and services tax (GST) rate on mobile phones and fabric may be hiked by the GST Council next week. This could be part of an exercise to correct the inverted tax structure and boost revenue collection. The structure of higher tax rates on inputs than on final products is resulting in a huge input tax credit outgo. Other items which have seen an inverted duty structure include fabric bags, shoes, tractors etc. The GST rate on mobile phones is 12 percent, whereas that on phone parts and batteries is 18 percent, triggering an inverted tax structure.

That, in turn, leads to unutilised input tax credit and hence issuance of refunds by the government. In case of phones, a single manufacturer last year claimed a refund of close to Rs 4,100 crore. Pointing out that the issue of inverted tax structure is resulting in huge refunds outgo, a government official said that mobile phones and fabric could see GST rate rectification. A registered taxpayer can claim refund of unclaimed input tax credit on account of higher tax on input and lower tax on output. Similarly, fabric has a GST rate of 5 percent, whereas different types of yarns are taxed at 12 percent.

Initially, the government had not allowed fabric manufacturers to claim input tax credit refunds, but later allowed refunds in the July 2018 meeting. “Input tax credit refunds should not have been allowed on fabric in the first place. It was a political call taken at that time. It should be addressed now,” said another official.

Read More at: https://www.business-standard.com/article/economy-policy/higher-gst-rate-on-mobiles-fabrics-likely-to-boost-revenue-collection-119121200057_1.html