Even as a four-slab GST tax structure of 6, 12, 18 and 26 per cent as proposed by the GST Council on Tuesday could be inevitable for a timely implementation of the GST regime, experts believe that the proposal of additionally levying cess on certain ultra-luxury and sin goods might beat the purpose of rolling out a single-tax regime as originally envisaged.
“While multiple rate structure seems to be the only realistic way for arriving at a consensus for timely implementation of GST, possible imposition of a central cess comes as a disappointment for the industry. All along the understating has been that all cesses and surcharges would be subsumed with GST, which has been reflected in all official documents till date,” said Pratik Jain, leader, indirect tax, PwC India.
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Jain also said that if the cesses are imposed, it would complicate the overall structure by cascading the taxes.
“Also, it is possible that the government may not need substantial amount for compensation to states, if there is buoyancy in revenue (including income tax as leakage is expected to reduce under GST),” he added.
As per the proposed rate structure, the government plans to create a Rs 50,000 crore pool that would be used to compensate the states for revenue loss arising out of implementation of GST. This amount is proposed to be raised through an additional cess on the demerit goods.
A committee headed by Chief Economic Adviser Arvind Subramanian had last year mooted 17-18 per cent standard rate for majority of goods and services.
However, for certain low rate goods and services a 12 per cent rate was recommended, while a 40 per cent rate was mooted for ultra-luxury and sinful goods like luxurious cars, pan masala, tobacco, aerated beverages, among others.
“The discussions on levying a cess on certain products would in some ways defeat the purpose of rolling out as a single tax replacing all taxes and cesses and it needs to be ensured that such cesses are levied on very few products on an exception basis,” said Deloitte Haskins & Sells LLP’s senior director (Indirect Tax) M S Mani.
Since the proceeds from this cess is expected to be used for the purpose of the aforementioned pool, experts believe it will be non-creditable. “This cess that the Centre is talking about is likely to be non-creditable. Because the Centre wants to create a pool for compensation, the cess rate will likely come to between 1-2 per cent,” Nangia & Co director Rajat Mohan was quoted by PTI as saying.