Four-tier rate structure, cess for luxury goods: Takeaways from GST meet

Centre, states agree on compensation formula; cess on cards for ultra-luxury items

 

FM Arun Jaitley with Revenue Secretary Hasmukh Adhia

The GST Council on Tuesday discussed a four-tier rate structure suggested by the Centre and agreed on compensation to loss-incurring states for the first five years of the new tax regime. The Opposition might voice differences with the proposal.

The council was apprised of the proposal of these slabs — 6, 12, 18 and 26 per cent, with cess on the highest tariff for ultra luxury and demerit items. The proposal also includes four-per cent rate on gold, but the Centre said it can’t be called a slab because it is specific to just one commodity.

Discussions will continue over the next two days.

The council is headed by Union Finance Minister Arun Jaitley and comprises finance ministers and representatives of states.

Jaitley told reporters the base year for calculating the revenue of a state would be 2015-16 and secular growth of 14 per cent would be taken for calculating the likely revenue of each state in the first five years.

The council also looked at standard GST rates of 12 and 18 per cent, under which 70 per cent of taxable goods would be covered.

According to the proposal, the highest slab would be 26 per cent. It would cover 20 to 25 per cent of taxable goods, including consumer durable and vehicles.

For ultra-luxury items, such as expensive cars, or demerit items, such as tobacco, a cess above the 26-per cent rate would apply, Revenue Secretary Hasmukh Adhia said after the meeting.

“The proceeds from such cess, estimated to be around Rs 50,000 crore, would be exclusively used by the Centre to compensate states,” he added. Items that attract a five-per cent value added tax will come under the lowest bracket of six per cent, Adhia said. He added services would be either in the 12 per cent and 18 per cent brackets.

ON GST RATES

“The principles of fixing the rate would be it should be inflation neutral, states and Centre continue with their expenditure and taxpayers are not burdened”

Arun Jaitley, Finance minister

“As an indirect tax, GST affects the rich and the poor alike. I urge GST Council to keep the rate at 18 per cent or lower”

Rahul Gandhi, Vice-president, Congress

“Our state govt wanted the highest rate to be fixed at 30 per cent so that common man can either be exempt or levied with lower tax rate”

Thomas Issac, Finance minister, Kerala

“We will like to keep GST rate slabs as low as possible and as clean as possible. But current revenues should not be compromised”

Abhimanyu Sindhu, Finance minister, Haryana

Jaitley said, “The principles of fixing the rate would be it should be inflation neutral, states and Centre continue with their expenditure and taxpayers are not burdened.”

Once the rate structure is finalised, the technical group of state and central tax officers would discuss which item would fall in which tax bracket.

“So far, between the last two meetings and today, we have been one by one reaching a consensus on each issue and so far all decisions have been taken by a consensus,” said Jaitley.

“And the object is to keep on discussing and re-discussing even when there is no agreement on the first instance, and take as many decision as possible by consensus,” he added.

Kerala Finance Minister Thomas Issac said his state government wanted the highest rate to be fixed at 30 per cent so that common man items can either be exempt or levied with lower tax rates.

The compensation to states would be “limited to taxes subsumed into GST”, he said.