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| GST may not cover alcohol |
| Prashant K Sahu / New Delhi Feb 09, 2009, 00:34 IST |
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 Move to protect revenues of states.
Demerit good alcohol may be kept outside the ambit of the Goods and Services Tax (GST) regime, which is scheduled to be implemented from April next year, to protect the revenues of the states. A demerit good is a good whose consumption is considered unhealthy.
Tobacco, another demerit good, may be brought under GST with input tax credit — where taxes on inputs are set off against the tax paid on the finished goods. However, the Centre may be allowed to levy excise duty without the input tax credit, over and above the GST rate, to protect its revenues.
These proposals form part of the recommendations of a sub-panel of the Empowered Committee of State Finances Ministers, which is giving final touches to the dual GST structure for the country, in consultation with the Centre. The committee is an apex body that resolves all central and state economic matters, and also has representatives from the Union finance ministry.
Under the GST structure, both the Centre and states will have the power to tax all goods and services at every stage of value addition. The tax rate will be uniform and consist of state and central tax components.
Already, taxes on petroleum products, which contribute nearly 40 per cent of tax collections, have been kept outside GST regime to protect the revenues of Centre and states, as the GST rate will be moderate. The combined GST rate is likely to be around 16 per cent. An estimate of how much taxes on alcohol and tobacco contribute to the revenue of the states is not known.
Currently, alcohol sales are taxed by states at a floor rate of 20 per cent. But the rate is high as 36 per cent in some states. “Considering the requirements of several states, alcoholic beverages may not be brought under GST,” a state finance minister said.
The state tax officers’ panel also recommended that states should continue to collect excise duty on alcohol. States also collect licence fees from liquor manufacturers and distributors, prompting them to lobby to keep the product outside GST.
On tobacco, the panel has recommended that it should be subjected to GST with input tax credit. However, the Centre may be allowed to levy excise duty on tobacco products, over and above GST and without input tax credit to ensure its revenues are not affected under the benign tax regime.
Tobacco is taxed at 12.5 per cent at the state level, while the Centre levies excise duty on tobacco at various rates.
There are some other products like electricity on which the states and Centre are yet to take a final view on keeping them outside the GST regime.
The GST structure, which is almost ready, is waiting for a final nod from Prime Minister Manmohan Singh, expected to come this month.
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