A maximum of 15 per cent cess on top of the peak GST rate of 28 per cent will be levied on luxury goods and aerated drinks after the GST Council today approved a cap on cess along with supporting legislations.
The actual cess on demerit goods, which will help create a corpus for compensating states for any loss of revenue from GST implementation in the first five years, may be lower than the cap as the Council has kept a “little” headroom for future exigencies, Finance Minister Arun Jaitley said. Giving an example, he said if a luxury car at present commands a total tax of 40 per cent, under the new indirect tax regime, a GST of 28 per cent plus 12 per cent cess would be levied to keep the tax incidence at the same level.
The 15 per cent cess cap would apply on luxury cars and aerated drinks. On pan masala, the cess has been capped at 135 per cent ad valorem.
Tobacco cess will be capped at a mixture of Rs 4,170 per 1,000 sticks or ad valorem of 290 per cent. Cess on coal would be at Rs 400 per ton. No decision has been taken to levy cess on bidis as of now, an official said.
The panel today also cleared the State-GST (S-GST) and Union Territory GST (UT-GST) legislations, Jaitley said while briefing reporters on the deliberations at the 12th meeting of the all-powerful GST Council.
The panel at its last meeting approved the final draft of central GST (C-GST) and integrated GST (I-GST) laws. The supporting S-GST and UT-GST legislations together with the GST Compensation Law will go to the Cabinet for a formal nod before they are presented in Parliament in the ongoing Budget session that ends on April 12.
The government is hoping the C-GST, I-GST, UT-GST and the GST Compensation laws will be approved in the current session of Parliament and state legislatures will soon clear the S-GST bills so that the new indirect tax regime can be rolled out from July 1. Jaitley said the GST Council will meet again on March 31 to approve rules after which fitting goods and services in the four-slab tax structure of 5, 12, 18 and 28 per cent will be taken up.
Apart from tobacco, aerated drinks, luxury cars and environment cess, the GST Council has kept the option open for levy of 15 per cent cess on “all other supplies”.
“The cess would be levied for five years and can be continued longer. The Council has kept the option open for levying cess on any residual item as and when decided by the Centre and states,” the official said.
A cess of up to 15 per cent would be levied on those motor vehicles other than those used for transport of 10 or more persons, including the driver. But the exact definition of luxury cars would be decided by the Council at a later date.
The cess cap of 15 per cent has been mentioned in the compensation law and the effective tax rate that would be arrived at in the GST regime would not be higher than the present incidence on these goods as it might stoke inflation, the official added.
“For the purposes of empowerment, we have kept the cap of 15 per cent for cess, even though we may end up imposing only 12 per cent. The cap is ceiling, so we have kept a little headspace… not an extraordinary headspace, but only a marginal headspace,” Jaitley said.
He said the four laws — CGST, IGST, UTGST and Compensation law — as approved by the Council will be taken to the Cabinet and after its approval these would be introduced in the Lok Sabha.
“We will try and do that expeditiously,” he said.
SGST laws will be taken up by the state cabinets and the respective state assemblies for passage.
The GST Council has already approved five sets of rules and regulations relating to registration, payments, refund, invoice and returns, Jaitley said, adding there are four others — composition, valuation, input tax credit and transitions — which now require a formal approval.
He said the five sets of already approved regulations might require “marginal corrections” in view of the legislations which have been finalised by the Council. The officers committee will circulate the set of nine regulations to the states by the next weekend.
The GST Council will consider and approve those regulations in the next meeting on March 31.
After these rules are approved, the fitment of various commodities into the tax slabs would be taken up.
“Once that is done, we will be ready for GST implementation. Hopefully, we intend to immediately after March 31, once the rules are approved, take up the exercise of fitment of slabs.
“We will have a sufficient buffer in terms of time between the entire preparatory exercise and July 1 date fixed for implementation,” Jaitley said, adding the progress so far is in the “right direction”.
With regard to taxation of SEZ under the GST regime, an official said it would be “zero rated at par with exports”.
“Now, we will have the same treatment for any supply made to SEZ as it is made in case of exports. Earlier, we had said that they will first pay the tax and then the SEZ unit will get refund. Now, it has been agreed that in case of physical export or anybody supplying goods to SEZ, the same methodology will apply. They can do it either under bond and not pay tax or they can pay IGST and take refund,” the official said.
KPMG (India) National Head, Indirect Tax, Sachin Menon said clearance of the model GST law is warning bell for those who have not yet commenced their preparations for introduction of GST.
PwC India Indirect Tax Leader Pratik Jain said, “It is also good to see a capping on cess at 15 per cent along with clear statement that cess will apply only on select commodities.”