When GST comes into force, aerated drinks, tobacco products, luxury cars and pan masala will attract cess * White goods, soaps, oils, shaving kits will be taxed at lower rates * Foodgrains likely to be exempted
The rate structure finalised by the Goods and Services Tax (GST) Council on Thursday is not what was believed to be 'one nation, one tax'.
The Council, represented by all State Finance Ministers and the Union Finance Minister, decided on a four-slab structure with the lowest rate of 5%, two standard rates of 12% and 18% and a peak rate of 28%.
It has imposed an additional cess on four items over the peak rate. They are aerated drinks (existing tax rate 40%), tobacco products (65%), luxury cars (40%) and pan masala (40%). The Council held back a decision on gold and service taxes.
Finance Minister Arun Jaitley, who is heading the Council, said that imposing cess to compensate for the losses suffered by some states due to the implementation of GST was a better option, rather than an additional slab of 40%, which could have had a cascading impact of Rs 1.72 lakh crore and additional burden on taxpayers.
"If the compensation is to be made through tax collection (and no cess), the cascading effect will be Rs 1.72 lakh crore, because out of that, 50% would go to the states and 50% to the Centre. Then, out of the Centre's share, 42% would go to the states, along with compensation (for their losses, if any). So, paying it out of tax will be a huge burden on on taxpayers. So, we decided against that," he told reporters after the Council meeting.
The Council has estimated that the Central government would need Rs 50,000 crore in the first year to make good the losses of states. The Constitutional Amendment Bill for GST has provided for compensation of losses in the first five years of GST implementation.
Earlier, Jaitley had said that all existing cess would be subsumed into the GST.
The rate structure being considered earlier by the Council was 6%, 12%, 18% and 26% while a 4% rate was being looked at for gold. Foodgrains are likely to be exempt from GST.
Jaitley said many of the goods, which currently fall in the higher bracket, would be "transferred" to the lower bracket. He said that white goods, soaps, oils, shaving kits and other items, which are taxed around 30-31%, will be moved to 28% and many goods that currently attract 28% tax rate would attract 18% tax now on.
"Many items will be transferred from the 28% rate to 18%. Today, items which are taxed at 30-31% like white goods, and other items like soaps, oils and shaving kits will be moved to the 28% slab," said the FM.
He also hinted at narrowing down the 28% slab with lesser goods in that bracket.
Analysts said that it was premature to determine whether the rate structure would be inflationary or not. "While the rate structure is similar to what was proposed initially by the GST Council, it all depends on what item is in which bracket to understand the impact on the overall GST structure," said Bipin Sapra, Tax Partner, EY India.
The government wants to introduce two pieces of legislation – Central GST (GCST) and Integrated GST (IGST) – in the winter session, which will begin in the middle of this month. The government has set the date for the rollout of the Unified Indirect Taxes as April 1, 2017.
Changing matrix
Four-slab structure with the lowest rate of 5%, two standard rates of 12% and 18% and a peak rate of 28%
Additional cess on four items over the peak rate.
Aerated drinks (existing tax rate 40%)
Tobacco products (65%)
Luxury cars (40%)
Pan masala (40%)
Decision on gold and service taxes not taken
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