GST Council discusses 4-tier tax rate, cess on demerit goods

At the recently held GST Council, a four-slab GST tax structure of 6, 12, 18 and 26 percent with lower rates for essential items and the highest for luxury goods that will also be levied with an additional cess was mooted. With a view to keep inflation under check, the proposal sponsored by the Centre proposed to continue exempting food items from tax as well as keep 50 percent of the common use goods in either exempt category or lower band.

Also, 70 percent of the items is proposed to be governed by 18 percent of lower GST rate. But ultra-luxury items like high-end cars and demerit goods like tobacco, cigarettes, aerated drinks, luxury car and polluting items would attract an additional cess on top of the 26 percent GST rate.

A 4 per cent GST rate was suggested on gold. FMCG and consumer durable products would attract 26 per cent GST rate, against the current incidence of around 31 per cent. The all-powerful GST Council, headed by Finance Minister Arun Jaitley, on Day 1 of its three-day meet reached consensus on the formula for payment of compensation to states from any loss of revenue from implementation of Goods and Service Tax (GST) in the first five years beginning April 1, 2017.

The panel that also includes representatives of all states, agreed on keeping base year for calculating the revenue of a state at 2015-16 and considering a secular growth rate of 14 percent for calculating the likely revenue of each state in the first five years of implementation of GST, Jaitley told reporters at New Delhi.

States getting lower revenue than this would be compensated by the Centre. The GST Council discussed five alternatives of GST rate structure, he said, adding no decision was taken and discussions would continue tomorrow. While the cess on luxury and de-merit items would be used to create a Rs 50,000 crore fund to compensate states for loss of revenue, the Centre was not ready to include state tax breaks to calculate GST compensation, state officials said.

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Explaining the rate structure proposed by the Centre, Revenue Secretary Hasmukh Adhia said taxation of services would however be only in the 6 percent, 12 per cent and 18 percent with the higher rate at 18 percent.