GST Council decides on 4-tier tax structure ranging from 5% to 28%
The Goods and Services Tax Council on Thursday arrived at a consensus on a 4-tier GST tax structure of 5, 12, 18 and 28 percent, at the meeting chaired by Union Finance Minister Arun Jaitley.
Items of mass consumption will attract the lowest rate of 5 percent, while luxury goods and demerit items such as aerated drinks, paan masala, luxury cars and tobacco products will be taxed at 28 percent.
In a bid to keep inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
The lowest rate of 5 per cent would be for common use items and two standard rates of 12 and 18 percent would be applicable under the GST, considering the inflation impact of having one standard rate, Jaitley said.
Jaitley, at the first day of the two-day GST Council meeting, announced that the highest tax slab of 28 percent will be applicable to items which are currently taxed at 30-31 percent (excise duty plus VAT).
Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate, taking the total tax to anywhere between 40 to 65 percent.
The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.
The cess, he said, would be lapsable after a period of five years.
Jaitley said about Rs 50,000 crore would be needed to compensate states for loss of revenue from rollout of GST, which is to subsume a host of central and state taxes like excise duty, service tax and VAT, in the first year.
Mumbai, which is set to lose out on revenue from Octroi, will also be compensated from the same pool.
The 4-tier tax structure agreed to has slight modification to the 6, 12, 18 and 26 per cent slab that were under discussion at the GST Council last month.
The structure to agreed is a compromise to accommodate demand for highest tax rate of 40 percent by states like Kerala.
The Centre also proposed to levy a 4 per cent GST on gold, but a final decision was put off, Jaitley said.
The GST Bill was passed by the Rajya Sabha on August 3 and approved by President Pranab Mukherjee on September 8, after being ratified by 16 states.