GST Council has almost reached consensus on tax rates: Jaitley

  • GST Council has almost reached consensus on tax rates: Jaitley

GST Council has almost reached consensus on tax rates: Jaitley

The Goods and Services Tax Council ended its three-day meeting a day ahead of schedule on Wednesday after states failed to reach a consensus on the rate bands for the new regime, The Hindu reported. Proceeds from the cess on these items will go toward creating a Rs 50,000 crore fund to compensate states for loss of revenue. It has suggested a lower rate of 6% for essential goods and a peak rate of 26%. The Council has decided on the issue of compensation for states. The issue is being rediscussed.

Finance Minister II Johari Abdul Ghani said past year the inflation rate was at 3.435 per cent.

The all-powerful Goods and Services Council on Tuesday proposed a cess on luxury goods, prompting criticism from some states and businesses. For example, for aerated water, cigarette, bidi, luxury vehicle it may be different. Kerala Finance Minister Thomas Isaac said that states could not agree on the four-slabs structure proposed by the Centre. They backed a higher burden on tobacco, while insisting that the lowest slab of 6% be reduced to 5%.

One assessee must only be assessed by one authority. "So whom will the Centre assess and whom will the state assess and how that bifurcation will take place depends on how the dual authority is managed..."

Food items will continue to be exempt from tax. The Council will now discuss the rate structure in its next meetings on November 3 and 4.

The States also called for a fresh discussion on control of assessees. The Council also examined the demerit of items like tobacco in a GST regime.

A mechanism will be worked out for traders above Rs 1.5 crore to ensure a dealer is regulated either by the central government or the state and not both.

The rationale behind the proposed tax slabs and their applicability on goods and services was explained by a senior finance ministry official on Tuesday.

It also means the revenue department does not buy the CEA's argument that a lower rate in a GST framework will, in itself, lead to more compliance which will result in more taxes for the centre, from which the states can be given their compensation.

"That comes to around Rs 44,000 crore". With the new structure proposal capping the rate at 26 percent and also adding a cess on top of it, this is unlikely to pass the muster.

Five alternatives of GST rate structure were debated by the GST Council.

"I have nothing to say on rates but it should not happen with cess as this will open floodgates for various types of cess in future".

"This cess that the Centre is talking about is likely to be non-creditable". It worked out a compensation formula for states and is now bracing for a testy debate on rates.

Indeed, one of the reasons for the GST rates going up is the fact that half the taxable base is not to be taxed - if half the base is not to be taxed at all, it means the other half has to be taxed at double the normal rate.

"To achieve the objective of a simple tax structure, and to avoid classification of disputes, GST should only be a two-rate structure", it added. Most countries have a common tax which is much lower, three per cent in one case, compared to the six per cent at the lowest end proposed for India. FMCG and consumer durable products would attract 26 per cent GST rate, against the current incidence of around 31 per cent.