GST Council decides on 4-tier tax structure, lowest rate fixed at 5 per cent

Announcing the decisions arrived at the first day of the two-day GST Council meeting, Finance Minister Arun Jaitley said highest tax slab will be applicable to items which are currently taxed at 30-31 per cent (excise duty plus VAT).

By: PTI | New Delhi | Updated: November 3, 2016 7:59 pm
Arun jaitley, gst, Gst taxes, Goods and Service tax, GST rate, GST news, gst rates, gst council, jaitley, jaitley gst, arun jaitley gst, goods and service tax, business news, india news, Finance Minister Arun Jaitley. (Source: File)

A four-tier GST tax structure of 5, 12, 18 and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by the all-powerful GST Council on Thursday. With a view to keeping 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 while there would be two standard rates of 12 and 18 per cent under the Goods and Services Tax (GST) regime targetted to be rolled out from April 1, 2017.

Announcing the decisions arrived at the first day of the two-day GST Council meeting, Finance Minister Arun Jaitley said highest tax slab will be applicable to items which are currently taxed at 30-31 per cent (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. 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 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.

While the Centre proposed to levy a 4 per cent GST on gold, a final decision was put off, Jaitley said.

Asked about the incidence on automobiles, Jaitley said: “There is a difference between cars and luxury cars. Cars will come under 28 per cent, but luxury cars owners can afford to pay a little more”. Jaitley said Kerala had an alternate opinion on highest tax rate but “all decisions were taken by consensus… We have avoided voting”.

Higher taxes for compensating states would have been “hugely burdensome for consumers” and the incidence of cess will not add a single rupee to prices, he said.

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 would lapse after five years and any surplus to the cess pool at the end of 5 years would be shared between the Centre and states.

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.

The 4-tier tax structure agreed to is a slight modification over the 6, 12, 18 and 26 per cent slabs proposed, which were discussed at the GST Council last month. The structure agreed to is a compromise to accommodate demand for highest tax rate of 40 per cent by states like Kerala.

While the Centre proposed to levy a 4 per cent GST on gold, a final decision was put off, Jaitley said. Delhi Deputy Chief Minister Manish Sisodia favoured 2 per cent tax on gold, along with some other states.

Explaining the tax structure, Jaitley said foodgrains used by common people would be at zero-rate so that the impact of inflationary pressure on them is the least. The second category of 5 per cent will be on items of mass consumption which are used particularly by common people.

The third category of standard rate of 12 and 18 per cent would accommodate most of the goods and services, which too are likely to fall in this bracket. The fourth slab of 28 per cent would be applicable mainly on white goods, on which the present tax incidence is 30-31 per cent. Those goods used by common man like soap, toothpaste, would be brought in the 18 per cent bracket.

“We are broadly taking it to revenue neutrality and the gains out of this will be set off by narrowing the 28 per cent slab. So you will have lesser items in 28 per cent,” he said.

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  1. T
    Thunga
    Nov 3, 2016 at 3:28 pm
    How come every brahmin DOG naturally umes that every other brahmin DOG is the co-husband of his wife and defends them so ferociously? Is just beyond human intuition and comprehension.
    Reply
    1. K
      Kaliyug
      Nov 3, 2016 at 1:47 pm
      About 80% of India seldom pays any taxes, so GST is the only way to get them to pay their fair share on consumption. Contrary to the thinking that it affects the poor more harshly, one can see that the poor have cell phones and other gadgets for which they find money. There should be an "Breeding Tax", for those with more than two children, with compulsory permanent family planning for those with three kids, this will save India from disaster. If the Chinese are dumping goods into India then India needs to follow the Chinese and improve on quality, functionality and price, Nehru tried to prevent the imports and what India got is a rotten Ambador car, with people close to politicians getting all the rights to manufacture without compeion.
      Reply
      1. J
        Jay
        Nov 3, 2016 at 2:01 pm
        Jaitley has botched this and with it, India has lost the one chance it had to reform its tax systems. How is this 4-tier system, together with the inevitable cess (that, mark my words, will be extended across all slabs eventually and become slabs in themselves) different from what existed? This is no example of simplicity! If the nation could not dare to dream of a highly simplified indirect tax code, it has next to no chance in simplifying the direct tax code. India will continue to stay at the bottom of the "ease of doing business" yardstick because its politicians and bureaucrats are not really keen to ease doing business, only make money for themselves...
        Reply
        1. K
          Kabir
          Nov 3, 2016 at 9:25 pm
          have you stopped selling burnol now a days? no one bought it or all spent own burns?
          Reply
          1. K
            Kabir
            Nov 3, 2016 at 9:23 pm
            kitana fekoge prateik. bas kar yar rulaoge ab hasa hasa kar. BTY, stop working for peanuts.
            Reply
            1. M
              mathimathi
              Nov 3, 2016 at 5:53 pm
              why petrol diesel Particularly diesel prices can't be reduced while Oil price slumps on most bearish report of all time. FM. Arun Jaitley.
              Reply
              1. R
                Rajan
                Nov 7, 2016 at 7:05 am
                All sounds fairly ok as details are yet to be public but one thing which is most important is the 1st years outcome. I hope this country's leaders prove themselves for the first time in front of the world. All the eyes are on this country today and yes if it does then there will be no lookback. It's a tough task but achieavable only with the cooperation and positive approach of the middle to rich strata of this country. lt;br/gt;lt;br/gt;"Siyasat bhi ek sadhna hai jo drid bhavna kay bagair paripurn nahin ho Shakti."
                Reply
                1. T
                  Tetris Karo
                  Nov 3, 2016 at 3:33 pm
                  Max GST rate proposed by MPs was 18%. Now it has gone to 45%. Very good progress. Tobacco and liquor are luxury item for FM, which are mainly used by poor people. Educate people for not using them than charging higher price. Those who are using tobacco or liquor will use at any price, finally people will become poorer and poorer. Govt will get more money. lt;br/gt;lt;br/gt; Anyway price is going higher and higher and cost of living going through the roof.
                  Reply
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