Tax exemptions on some B2B transactions may face the axe if panel suggestions get approved this week
The tax burden could increase on items like water pumps, dairy machinery, leather products and solar water pumps, and services like hospital rooms with rent above ₹ 5,000 a day and hotel accommodation cheaper than ₹ 1,000 a night, if the proposals of a ministerial panel are cleared at the Goods and Services Tax Council’s meeting this week.
In addition, tax exemptions on certain business-to-business transactions are likely to face the axe if the recommendations by a committee led by Karnataka chief minister Basavaraj Bommai get approved.
The committee has recommended curtailing tax exemptions and correcting certain tax anomalies, including imposing a 12% GST on hotel accommodation priced below ₹ 1,000 a night and levying 5% GST on hospital rooms if rent is above ₹ 5,000 a day. The withdrawal of exemption on budget hotel stay is proposed because in any case, there is no GST registration requirement for small businesses with sales of up to ₹ 20 lakh. The idea of removing the tax exemption on hospital room rent above the specified price threshold is that the customer base for such service is the financially well-off, according to official documents seen by Mint.
The proposals that are part of an interim report by the committee include raising the GST rate from 12% to 18% on items like printing, writing, drawing ink, certain knives, spoons and tableware, dairy machinery, LED lamps and drawing instruments. A rate increase from 5% to 12% is proposed on solar water heater and finished leather. Also, tax refunds claimed due to tax anomalies in certain cases, for example, edible oils, may be disallowed. An increase in the GST rate from 5% to 12% and from 12% to 18% on certain outsourced work is also expected.
Withdrawal of tax exemptions on certain business-to-business transactions -- for example, air travel in non-economy class to the North East and to Bagdogra and goods transportation service by rail or road -- are also recommended. In the case of such transactions, businesses any way get credits for the taxes paid. An email sent to the finance ministry and to the GST Council on Sunday seeking comments for the story remained unanswered at press time.
The GST Council is also likely to clarify the tax regime on casinos, online games and race courses specifying the transaction value on which a proposed 28% GST would apply, bringing much-needed certainty on the taxation in these sectors.
A second ministerial group led by Meghalaya chief minister Conrad Sangma has recommended that a 28% GST should apply on the entry fee and on the value of the chips or coins purchased at a casino, but not on individual bets placed by the player. In the case of online gaming, a 28% rate should apply on the full value of the consideration paid by the player for participation, according to the proposal. The panel has recommended that a 28% GST should be levied on casinos, online games and race courses without any regard for whether it is a game of skill or chance or both. Industry players have been paying 18% GST in many cases, backed by court orders.
The panel also suggested that once GST is levied on the purchase of coins or chips at casinos, no further GST should be levied on the value of bets placed on each round of bets.
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