Cess on demerit goods goes against GST structure: Expert

The cess on products like aerated drinks, tobacco products, luxury cars, pan masala is against the basic structure of Goods and Services Tax (GST) and goes against the promise made, an official of a tax consultancy firm said.

"The cess will add to cascading effect of taxes as it is a non-creditable cess. This move will go against the basic of structure of GST which was promised under the objects of constitutional amendment bill that all cesses and surcharged would subsumed under GST," Rakesh Nangia, Managing Partner, Nangia and Co told IANS.

He said the four tier tax structure may not be ideal scenario but it still is far ahead of what is prevalent today.

"On a macro level this will push the ease of doing business in India and will also improve our global ranking for the same," Nangia added.

On Thursday, the GST Council arrived at a consensus of four bands of tax of between 5 per cent and 28 per cent, while agreeing to compensate states for losses on account of a shift to this new regime by way of cess.

Apart from the 5 per cent and 28 per cent rates, there will also be two standard rates of 12 per cent and 18 per cent.

This apart, another category of tax will be imposed on luxury goods like high-end cars, pan masala, aerated drinks and tobacco products. They will be taxed at between 40 per cent and 65 per cent.

Union Finance Minister Arun Jaitley said the cess is not an additional levy, but an existing one and hence there will be no additional burden.

"Luxuary cars, tobacco, aerated drinks will be levied with a cess, which along with clean energy cess on usage of coal, will be used to compensate states for loss of revenue," he said.