Reverse charge why so shy gst council

Reverse charge why so shy gst council

The Goods and Services Tax Council has raised GST on mobile phones from 12% to 18%, the same rate that is levied on phone components, parts and battery. The move to harmonise the rates of tax on inputs and final output is welcome. But it would have been better if the GST Council had lowered the tax rate on inputs to achieve the same effect.

When the tax rate on inputs is higher than that on the output, input tax credit is a problem. For 12% of the phone price to be at least as large as 18% of the value of inputs, value addition in the conversion of inputs into the phone must be a minimum of 50%. This does not happen in India’s phone manufacturing story. So, the inverted duty structure led to a pile-up of input tax credits and problems in claiming refunds, blocking working capital for manufacturers. This had to change. But the rate hike on phones will make them more expensive from April. The India Cellular and Electronics Association claims this will stymie domestic consumption. Instead, the GST rate could have been unified downwards by lowering the GST on inputs. Higher sales of mobile phones would offset any revenue loss due to the reduction of GST on inputs. A review by the council, which has deferred revision in GST rates on items such as fertilisers and footwear, merits consideration.

Lowering the GST for maintenance, repair and overhaul (MRO) services to 5% from 18%, with full input tax credit, is welcome. Why the council had to think up a newfangled ‘know your supplier’ scheme is difficult to fathom. If the supplier has GST registration, there is nothing more to know. If the supplier is below the threshold for GST registration, the solution is to make reverse charge compulsory on all such purchases. The council should stop shying away from reverse charge.