India to slash sales tax on most goods subject to highest rate

An India rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

NEW DELHI (Reuters): India will slash the sales tax this week on most goods subject to the highest 28% rate, Finance Minister Arun Jaitley said Friday, as pressure grows for the government to reduce the burden of the new nationwide tax on businesses.

Marbles, chocolates and powder detergents are among 178 everyday items that will be taxed at the lower 18% rate under the changes. Other items that were already taxed below the top rate, such as condensed milk, sugar and pasta, will be shifted to even lower bands.

From Nov. 15, only 50 items will still be subject to the highest rate, mainly white goods such as washing machines and refrigerators, and “sin” items such as tobacco and fizzy drinks.

The move could cost the exchequer around 200 billion rupees ($3 billion) this fiscal year, Sushil Kumar Modi, the deputy chief minister of the eastern state of Bihar, and a member of the council, said earlier on Friday.

The launch of a new nationwide Goods and Services Tax (GST) in July transformed India’s 29 states into a single customs union. But traders and small businesses complain it has increased their administrative and financial burden.

All goods and services are taxed at one of five rates: 28%, 18%, 12%, 5% or zero.

“The (GST) council has been reviewing and rationalising tax rates from time to time, especially those in the tax bracket of 28%. Today, the council has decided to move 178 items from the tax bracket of 28% to 18%,” Jaitley said. The government faces criticism for the economic disruption caused by the tax roll-out and last year’s shock removal of higher-value currency bills from circulation.

As a result, India’s economy is expected to grow at its slowest pace in four years in the fiscal year that ends on March 31, a Reuters poll found.

The “panic-stricken govt has no option but to concede demands for change” in the tax, India’s former Finance Minister, P. Chidambaram, said on social network Twitter on Friday.