Medicines, tractors emerge as sticking points in scrapping 12 percent GST slab
Two categories of items currently under the 12 percent GST rate - medicines and tractors - have emerged as sticking points in the effort to do away with the tax slab altogether despite consensus, with states weighing tax implication and socio-economic impact of such a move, Moneycontrol has learnt from people familiar with the development.
The potential revenue loss from removing these two items is estimated at Rs 3,000–4,000 crore, government sources have said.
In order to do away from the 12 percent GST slab, medicines - including allopathic, ayurvedic and homeopathic – along with veterinary drugs as well as diagnostic kits and surgical dressings would have to be moved to the 5 percent GST slab. Tractors, currently taxed at 12 percent, cannot be shifted to the 18 percent bracket due to their classification as agricultural equipment, and may instead be exempted without input tax credit (ITC) in order to avoid tax inversion.
Tax inversion refers to a situation where the GST rate on inputs (raw materials or services used in production) is higher than the GST rate on the final product or output. This leads to accumulated Input Tax Credit (ITC), which the producer cannot fully utilise or claim back efficiently, thereby impacting cash flows.
