GST Council deliberating 40% tax for demerit goods like tobacco, SUVs

After intense deliberations in the morning session the goods and services tax (GST) council may be nearing consensus on a rate structure.

The states and Centre are learnt to be close to an agreement on four slabs — 5%, 12%, 18% and 28% — besides a top rate of 40% for demerit goods like tobacco, aerated drinks and special utility vehicles. This is a departure from Centre’s proposal of a 6% floor rate and 26% peak rate.

“States are nearly in agreement to the proposal of increasing the top slab to 28% from 26%, and a 40% rate for demerit items like tobacco, aerated drinks and SUVs,” Thomas Isaac, finance minister of Kerala told Business Standard who is part of the GST Council.

According to the current proposal being deliberated, foodgrains will be taxed at zero rate, necessities at 5%, a standard rate of 12% and 18% and a 28% slab for consumer durables. In addition tobacco, aerated drinks and SUVs be taxed at 40% rate.  

If approved, it will complicate GST framework with a six-tier rate structure.

The Council, chaired by Union finance minister Arun Jaitley, is meeting for the fourth time to thrash out vexed issues of rates and dual control.

This is a deviation from Centre’s stand to impose a cess on demerit and ultra luxury items in the 26% slab to compensate states. It had estimated a collection of Rs 50,000 crore by way of imposition of cess, which includes Clean Environment Cess.

The Centre was against the idea on the grounds that tax revenue will need to be shared with the states, while cess would be entirely dedicated towards the purpose of compensating states.

Besides, of the 50% that the Centre will get, 42% will go to states as devolution, which will stretch its revenues.

“So, out of every Rs 100 collected in GST, only 29% remains with the Centre. The tax impact of this levy would be exorbitantly high and almost unbearable,” Jaitley had said last week.