Mobile phones, man made garments set to get costlier

New Delhi, Mar 13: GST rates on mobile phones, fertilisers, man-made fabrics and garments are likely to be hiked to 18 per cent in the next GST Council meeting on March 14.

Experts said the rate hike would improve the working capital position of the manufactures as it would correct the inverted duty structure but may lead to increase in price of the finished goods.

Currently, under the goods and services tax (GST), certain manufactured goods attract a tax rate of 5 per cent or 12 per cent while their inputs, input services and capital goods attract GST at the higher rate of 18 per cent or 28 per cent.

The manufacturers have to claim a refund of accumulated input tax credit (ITC) where the tax rate on input is higher than the finished goods.

"The GST Council will take up in phases the correction of inverted duty on items as per the recommendation of the officers' committee. On Saturday, 4 items -- mobiles, fertiliser, footwear and man-made fibre, fabric and garments -- would come up for correction," the official said.

Currently, cellphones attract a GST rate of 12 per cent, while its inputs are taxed at 18 per cent.

"There is hardly any justification for retaining mobile at the slab rate of 12 per cent, while many items like TV, torches, geyser, iron, heaters, mixer, juicers, etc, attract GST at a higher rate," the official added.

In the pre-GST era, under the dual excise scheme, a manufacturer had two options for excise duty basic excise duty (BED) at 2 per cent or 1 per cent without CENVAT Credit, and BED at 12.5 per cent with CENVAT credit.

Imported mobile phones were being subjected to additional duty of customs (equal to higher of the BED) at 12.5 per cent.

While fertiliser was originally placed in 12 per cent slab, the Council later lowered the rate to 5 per cent. A total of Rs 6,000 crore have been claimed as input tax credit refund on fertilisers from July 2017 till date.

Fertiliser manufacturers have been claiming a lower rate on other inputs like ammonia and sulphur. Besides, 18 per cent rate on services and capital goods adds to duty inversion, the official added.

The total pre-GST tax incidence, including central excise, tax on inputs, average VAT, CST and octroi, on fertilisers was estimated to be about 9.75 per cent.

Besides, the duty inversion in man-made fibre (MMF) value chain has led to a total refund claim of about Rs 1,600 crore so far on man-made yarn and another Rs 2,300 crore on fabrics and other textile items.

"Economy is going through a rough patch and any further increase in tax rates would run negative sentiment throughout the entire sector and push the demands further down deteriorating the overall economic stability in the country " said AMRG & Associates Senior Partner Rajat Mohan.