Wondering why you have to pay 5% GST on pre-packaged items? Nirmala Sitharaman has the answers

When the GST rates were announced on pre-packaged and pre-labeled items, Indians went into a mini-shock because everyday essentials were to cost dearer. But Union Finance Minister Nirmala Sitharaman on Tuesday tweeted the reasons behind the decision

Common people were shocked when they learned of the GST rate hikes this week. Neither did anyone expect this steep hike in taxes for essentials nor did anyone imagine that so many new items will now be taxed. India's price-sensitive population has been trying to make permutations and combinations with the existing inflation of 6%, and this additional GST hike has just added salt to their wounds.

What seems to be super offensive is the imposition of GST on essential prepacked food items. This even led to the Opposition protesting the rate hikes in the Parliament, which also affected the Monsoon Session. The move was labeled ''extortionary''. Also, wholesale markets in Delhi were closed on July 16 to protest against the GST on food grains. 

HIGH taxes, NO jobs

BJP’s masterclass on how to destroy what was once one of the world’s fastest growing economies. pic.twitter.com/cinP1o65lB

— Rahul Gandhi (@RahulGandhi) July 18, 2022

In an attempt to peace out the national outrage and explain the move, Nirmala Sitharaman took to Twitter to explain what exactly happened:

1.  We are paying 5% GST because of tax leakage: When GST rates were initially rolled out, only branded cereals, pulses and flours were taxed at a rate of 5%. 

• The laws were then changed and the tax scope was reduced and only ''registered'' brands were mandated to pay 5% GST. (The unregistered brands could go scoot free) 
• This change in provision led a lot of reputed manufacturers and brand owners, that were already ''registered'', to either cancel their registration or sell their products under other unregistered brands. As many companies re-directed the sales from registered brands to unregistered brands to avoid paying GST, the government noticed a significant fall in revenue and a tax leakage. 
• Also, other registered brands and industry associations who were sincerely paying GST and following GST rules resented this move since they felt played. They complained to the government about this misuse of provisions and recommended a uniform GST on all pre-packed commodities, whether branded or not. 

After GST on atta it feels Nirmala Sitharaman is dining with me everyday. #gst #gstindia #gstupdates #nirmalasitharaman #GSThike #GSTcouncil pic.twitter.com/ZhxO73ZVkj

— Sachit Bhatia (@sachitbhatia) July 18, 2022

2. The GST is a continuation of the VAT: As per the Finance Minister, we always paid VAT on food grains before GST was levied. GST merely replaced VAT and so the accusation that GST is a completely new tax on food grains does not hold true. 

Is this the first time such food articles are being taxed? No. States were collecting significant revenue from foodgrain in the pre-GST regime. Punjab alone collected more Rs 2,000 cr on food grain by way of purchase tax. UP collected Rs 700 cr. (2/14) pic.twitter.com/T5G6FZ6lv5

— Nirmala Sitharaman (@nsitharaman) July 19, 2022

3. Not just the Centre, but your states also want you to pay GST too: The GST Council decides on the GST tax rates and the council comprises of representatives from all states, which includes the BJP majority states and the non-BJP states. Also, since the 5% GST you pay is split between the states and the Centre, states will equally benefit from the GST tax hike on prepacked and pre-labeled items. 

As per Sitharaman, the imposition of the tax was suggested by members from the states of West Bengal, Rajasthan, Kerala, Uttar Pradesh, Goa, Bihar, and Karnataka. This move was supported by non-BJP states like Punjab, Chhattisgarh, Rajasthan, Tamil Nadu, West Bengal, Andhra Pradesh, Telangana, and Kerala.

4. No taxes on food items that are sold in loose forms 

The @GST_Council has exempt from GST, all items specified below in the list, when sold loose, and not pre-packed or pre-labeled.

They will not attract any GST.

The decision is of the @GST_Council and no one member. The process of decision making is given below in 14 tweets. pic.twitter.com/U21L0dW8oG

— Nirmala Sitharaman (@nsitharaman) July 19, 2022