GST: Arun Jaitley favours lower rates for essential commodities, higher bracket for luxury goods

"Different items used by different segments of society have to be taxed differently. Otherwise the GST would be regressive. Air conditioners and hawai chappals cannot be taxed at the same rate," said Jaitley.

By: PTI | New Delhi | Published:October 26, 2016 4:32 pm
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Finance Minister Arun Jaitley on Wednesday favoured levy of cess on tobacco and luxury products to compensate states for loss of revenue on GST saying the cost of funding that through an additional tax would be “exorbitantly high and almost unbearable”.

Ahead of the meeting of all powerful GST Council next week to decide on GST rates, Jaitley said the 4-slab structure of 6, 12, 18 and 26 per cent was under consideration, with lower rates for essential commodities and higher bracket for luxury goods.

“Different items used by different segments of society have to be taxed differently. Otherwise the GST would be regressive. Air conditioners and hawai chappals cannot be taxed at the same rate. Total tax eventually collected has to be revenue neutral. The Government should not lose money necessary for expenditure nor make a windfall gain,” he wrote in a Facebook post.

Explaining the rationale for cess, Jaitley said if the central government has to borrow money to fund states’ compensation, it would add to its liability and increase cost of borrowing for the Centre, state governments and the private sector.

He said there is no rationale for increasing direct tax for this purpose and theoretically it has been argued that the compensation be funded out of an additional tax in the GST rather than by cess.

“Assuming that the compensation is Rs 50,000 crore for the first year, the total tax impact of funding the compensation through a tax would be abnormally high. A Rs 1.72 lakh crore of tax would have to be imposed for the Central Government to get Rs 50,000 crore in order to fund the compensation,” he said.

“50 per cent of the tax collected would go to the States as their GST share and of the balance 50 per cent in the hands of the Central Government and 42 per cent more would go to the States as devolution.

“So out of every 100 rupees collected in GST only 29 per cent remains with the centre. The tax impact of this levy would be exorbitantly high and almost unbearable,” he said.

Alternatively, Jaitley said cesses can be imposed which would be subsumed in the taxes after five years.

“This would include clean energy cess and cesses on luxury items and tobacco products, which in any case, presently also pay levy higher than 26 per cent. This would ensure no additional burden on the tax payer and yet be able to compensate the losing states,” he said.

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  1. Y
    Oct 26, 2016 at 1:07 pm
    gst is a regressive tax, public at large are aware of it; minister should not make misleading statements
    1. Y
      Oct 26, 2016 at 2:19 pm
      gst is a regressive tax, what the minister fails to say is that the govt is implementing national s tax/vat in the name of gst; only in s/vat you can find slab rates; gst is single rate tax system; min is out to fool people by selling gst as multi-tax system
      1. S
        Oct 26, 2016 at 12:12 pm
        the states need to answer their people,if they tax heavely like the east india company only to have money and waste in doles to win next elections, but failing the youth by creating no infra and jobs, and when they fail hey blame the center, in the name of region they abuse misuse the exchequers monies!
        1. I
          Oct 26, 2016 at 12:11 pm
          4 slab looks good
          1. A
            Ajit Shaurya
            Oct 26, 2016 at 11:46 am
            Seems like even the GST is going the way of the old regressive taxes, with the multiple slabs and cess and whatnot. Simplifying the old tax structure was the objective and now it seems like they are degenerating into another mess, after starting out well.
            1. S
              Santanu Roy
              Oct 26, 2016 at 1:59 pm
              GST is a progressive legislation and it fulfills the mandate of Art301 of the consution in alt;br/gt;meaningful manner.However there should a zero percentage as well for items like cereals,lt;br/gt;pulses,coal,cotton and host of other essential commodities;otherwise it will becomelt;br/gt;regressive and inflationarydia is going to pay a heavy price for signing the Paris climatelt;br/gt;treaty;India should and could have bargained for a better deal
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