Four-tier GST structure proposed: low of 6 per cent to high of 26 per cent, extra on luxury goods

The GST Council finalised the compensation formula for states for potential revenue loss, converging at an assumption of 14 per cent revenue growth rate over the base year of 2015-16

Written by Aanchal Magazine | New Delhi | Updated: October 19, 2016 12:55 pm
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A four-tier structure for Goods and Services Tax (GST) comprising a lower rate of 6 per cent, two standard rates of 12 per cent and 18 per cent, and a higher rate of 26 per cent with an additional cess for luxury and demerit goods were proposed in the third meeting of the GST Council Tuesday.

WATCH VIDEO: Here’s What Was Proposed At The Third Meeting Of GST Council

 

The higher rate for services under the indirect tax regime is proposed to be 18 per cent, while essential services such as transportation are proposed to be taxed at 6 per cent or 12 per cent.

Around 70 per cent of the taxable base is proposed to be taxed at either 18 per cent, 12 per cent or 6 per cent, with more than 50 per cent of the items to be taxed at 12 per cent or 18 per cent. Ultra-luxury items like high-end cars and demerit goods like tobacco, cigarettes, pan masala and aerated drinks, comprising about 25 per cent of the taxable base, would attract an additional cess over and above the higher rate of 26 per cent, Revenue Secretary Hasmukh Adhia told reporters after the meeting.

WATCH VIDEO: Explained: How Will GST Work?

 

Gold is proposed to be taxed at 4 per cent.

The collections from the proposed cess on luxury or demerit supplies over and above the higher tax slab are estimated to be around Rs 50,000 crore, out of which around Rs 26,000 crore will be collected through clean environment cess, Adhia said, adding that the cess collections will be exclusively used by the Centre to compensate states.

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In its presentation at the meeting of the GST Council, which is headed by Finance Minister Arun Jaitley and has representatives of all states, it was said that the total impact of the proposed rate structure on Consumer Price Index (CPI)-based inflation rate will be (-) 0.06 per cent.

Under the proposed GST rate structure, the inflation impact on constituents of CPI such as health services, fuel and lighting and clothing is estimated to be 0.56 per cent, 0.05 per cent and 0.23 per cent, respectively, while for transport it is estimated at (-) 0.65 per cent, education at (-) 0.08 per cent and housing at (-) 0.09 per cent. Total revenue collection under the proposed GST structure is estimated at Rs 8.72 lakh crore (based on 2015-16 estimates).

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During the meeting, it was discussed that the GST rate should not be regressive in nature and be such that the existing revenues of states and Centre are protected and the impact on CPI inflation is minimal. It was said that the items being consumed by upper middle class and rich, which are being taxed at higher rate presently, should not be taxed at a rate lower than their present tax incidence, while items of mass consumption should not be taxed at a higher rate.

It was discussed that the items which are exempt from excise (currently at 300) and are taxed at a lower VAT rate of 5-6 per cent can be taxed at 12 per cent, while items with at least 27 per cent tax incidence can be taxed at a standard rate of 18 per cent under the GST regime. Items presently being taxed at standard rate by both Centre and states are proposed to be kept in higher tax slab.

Jaitley said: “The broad approach has been that the rate structure should be such that it does not lead to any further CPI inflation, states should have adequate revenue and so also the Centre, so as to discharge their obligations, and this has to be blended with only the least possible burden which has to be put on the taxpayer. The revenue model should be such that it has some additional resources which could be used for revenue payment, for compensation payment to any losing state.”

Last year, a committee headed by Chief Economic Adviser Arvind Subramanian had recommended a revenue neutral rate (RNR) of 15-15.5 per cent and standard rate of 16.9-18.9 per cent for the proposed GST and a high rate of 40 per cent for luxury goods.

“There are five alternative options for rates that have been worked out. It will be discussed tomorrow,” Jaitley said, adding that after the decision on rates, the technical group of officers will decide which group of items will be put into which category of rate.

The GST Council finalised the compensation formula for states for potential revenue loss, converging at an assumption of 14 per cent revenue growth rate over the base year of 2015-16 for calculating compensation for states in the first five years of implementation of GST. States getting lower revenue than this would be compensated by the Centre.

The Finance Minister said that all decisions of the GST Council are being taken with consensus. “So far between the last two meetings and today, we have been, one by one, reaching a consensus on each issue and so far, all decisions have been taken by consensus. And the object is to keep on discussing and re-discussing even when there is no agreement on the first instance and take as many decisions possible by consensus and, to the extent possible, avoid a situation where we have to put an issue to vote. So far, we have achieved that objective,” he said.

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  1. T
    Trun
    Oct 19, 2016 at 2:08 am
    Oops hope they don't move to GST of 100% as there seems to be no limit. So things which had low tax under the garb of GST will be taxed at higher rate.
    Reply
    1. A
      alam
      Oct 19, 2016 at 4:57 am
      Now confirms all parties are same. lt;br/gt;lt;br/gt;EK HAMMAM MEIN SAB NANGE.....lt;br/gt;lt;br/gt;CHAHE KISI KI BHI SARKAR HO.....SIRF AAM JANTA KI JEB KATO.....
      Reply
      1. D
        Dharmendra
        Oct 19, 2016 at 4:43 am
        why r u bringing the tax bracket of 40% to 21%. Thereby burdening the midlle cl with 12% and 18%. You cannot favour the rich.
        Reply
        1. H
          hotwashabi
          Oct 19, 2016 at 6:10 am
          Kejriwal will ensure that all taxes are abolished (that is the reason he resigned from revenue services). He will ensure that everything is free so there is no need for tax regime. He is Kalpbriskh, Kamdhenu, Kejri-mufflerwaal.
          Reply
          1. D
            Dinesh Kumar
            Oct 19, 2016 at 5:54 am
            Tume hamam ki bahut chinta ha I am unable to understand these mulla will be ready to comment anywhere. And they think them self as genius but they are s on this earth.
            Reply
            1. D
              ds sarawat
              Nov 4, 2016 at 6:50 am
              GST on stone grit,dust etc proposed
              Reply
              1. J
                Jithin
                Oct 19, 2016 at 4:09 am
                How can this 4 GST slab simply tax regime? It is made more complicated.
                Reply
                1. H
                  Harsh
                  Oct 19, 2016 at 11:10 am
                  Want to know your views about it, as I am a novice in tax calculation so is it a good move by the government? I consider that the bracket from 3 to 9 percent has been moved to only 6 percent these slabs has actually removed and a fix taxation is applied on the goods. Whats your opinion on it ?
                  Reply
                  1. M
                    marcos
                    Oct 19, 2016 at 11:49 am
                    GST explained is one of the most stupid video I ever saw ;it is clear that Indian Express team on finance/taxes/economy ... does not even have a basic sense on input credit available.... it is like rumor mongering
                    Reply
                    1. J
                      Jay
                      Oct 19, 2016 at 8:59 am
                      A fraud perpetrated on the Indian citizens...this was called GST with a promise to simplify tax collection and administration. So we were led down this glorious path, promised to have one universal tax, and seemingly debated threadbare.lt;br/gt;lt;br/gt;One Tax: that was the promise by our leaders. That was supposed to vary from 16% to 18%. Now you know.lt;br/gt;lt;br/gt;Zillion Taxes: That's our Indian government. We will now have 4 GST slabs, 10 GST sub-slabs (in due course), and 25 ad hoc slabs.lt;br/gt;lt;br/gt;Wait and watch. At the end of it all we will continue to pay under GST what we have always paid in so-called taxes PLUS whatever was paid under the table as non-tax tax.
                      Reply
                      1. A
                        Ashok Mazumdar
                        Oct 19, 2016 at 3:24 am
                        6% tax For Gas Balloons,lt;br/gt;12% tax for News Channels,lt;br/gt;25% tax for News papers,lt;br/gt;60% tax for Imported/ MNC products.lt;br/gt;600% tax on chinese and stani items,lt;br/gt;750% tax on Pak artists income.lt;br/gt;100% tax subsidy on Baba Productslt;br/gt;lt;br/gt;ZERO tax for Misinformation.lt;br/gt;lt;br/gt;Is what i propose.
                        Reply
                        1. A
                          Ashok Mazumdar
                          Oct 19, 2016 at 3:32 am
                          GST is A Hoax for all.lt;br/gt;Arun Jaitley is a 50:50 Lawyer lt;br/gt;lt;br/gt;50 % may be Correctlt;br/gt;50% may be incorrect.lt;br/gt;lt;br/gt;This is BJP strategy since it became a Political Party.lt;br/gt;lt;br/gt;On every issues, they are 50:50,
                          Reply
                          1. M
                            Maheswar Deka
                            Oct 19, 2016 at 3:46 am
                            Indian mindset is always rigid- people fear every new thing, a new law or a new policy.The GST now Indians fear . why ? Majority of Indians are timid.Further, Indians do not like to sacrifice for the well being of the country.No timid person can face new challenges.lt;br/gt;People now fear GST. The dealers fear GST because they might not be able to hide their s thereby they will have to make payment of due taxes to the government.Till now, the dealers are the big evaders of payment of taxes.
                            Reply
                            1. P
                              Parth Garg
                              Oct 19, 2016 at 4:50 am
                              It was promised that there would not be any Cess. Now they are renegading on It. They want to show tax at a lower rate while recovering more under the name of Cess. This is be-fooling the people.
                              Reply
                              1. J
                                jay
                                Oct 19, 2016 at 7:39 am
                                please do not introduce another cess again. what was promised was a simple uniform essee friendly tax structure. pl maintain it. with introduction of cess all realted works - maintaning separate accounting for cess, no cross utilisation of cess and tax - all works will continue. Pl, pl, pl pl do not introduce any fresh cess and make the essee life miserable. GST has turned out to be old wine in new bottle - absolutely no change in concept - just the same old cess and mess with a new name - GST
                                Reply
                                1. A
                                  Ajit Shaurya
                                  Oct 19, 2016 at 7:27 am
                                  Seems like all kinds of complexities are creeping into the GST structure too, now that it is ready to get implemented. These kinds of differentiations should be left behind in the legacy environment and should not be carried forward into the GST. My question is, what other unpleasant surprises are yet to come ?
                                  Reply
                                  1. S
                                    Suresh Shukla
                                    Oct 19, 2016 at 2:47 am
                                    Lol, GST was supposed to make the taxation easier by having one constant rate. Now that they have "4 tiers" of GST it just means that they have only changed the names of the existing taxes. Changing names is anyways BJP's speciality, be it roads, hospitals, insutions and now even taxes.
                                    Reply
                                    1. S
                                      siriyaar
                                      Oct 19, 2016 at 4:31 am
                                      again item wise tax oh. confusing.
                                      Reply
                                      1. T
                                        Tauro
                                        Oct 19, 2016 at 4:02 am
                                        Edible oil is taxed at 6% while gold is taxed at 4%. No meaning. Gold should be taxed at the maximum since that hurts only the rich and not the poor but the oil hits everyone.
                                        Reply
                                        1. I
                                          Indian
                                          Oct 19, 2016 at 7:17 am
                                          You are such a leech!!!!!! Why you are finding religion in somebody's freedom of expression?
                                          Reply
                                          1. U
                                            Udaynath
                                            Oct 19, 2016 at 10:51 am
                                            Well was the Congress right in advocating a Consutional amendment moved to cap the maximum GST% to 18?
                                            Reply
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