The Goods and Services Tax (GST) Council has agreed to put in an enabling provision in draft model GST law to cap the peak rate at 40 per cent (20 per cent Central GST+20 per cent state GST) from the earlier agreed upon rate of 28 per cent (14 per cent CGST+14 per cent SGST).
Though the capping of the peak rate at a higher level will not change the multi-slab rate structure of 5, 12, 18 and 28 per cent agreed upon last year, it will provide space to both Central and state governments to increase SGST and CGST rates once cess merges with the rate structure at a later stage, officials said.
As per the multi-slab structure, the council had decided to levy cess on demerit and sin goods like luxury cars, tobacco, aerated drinks and pan masala over and above the highest rate for five years. “After five years, the GST Council will decide the future course for levy of cess and therefore it was felt necessary to raise the cap on rates, so that the Bill need not be brought again for legislative approval,” an official said.
The draft model GST law, like other taxation laws, will change the wording for peak rate from ‘not exceeding 14 per cent’ to ‘not exceeding 20 per cent’, taking the total to 40 per cent.
Last year, rejecting the Congress’ demand to cap the GST rate at 18 per cent, the government had averted putting a cap in the Constitutional Amendment Bill for GST to avoid making repeated Constitutional changes.
The GST Council had last year agreed that the cess collected from demerit and sin goods will flow into a compensation fund, which will be used for compensating states for revenue losses after implementation of the indirect tax regime. If the cess gets merged into the tax structure after five years, then states and Centre will be able to charge a higher rate up to combined 40 per cent without taking the approval of the state legislatures and Parliament again.
The GST Council in its last meeting on February 18 discussed the legally vetted language of the model GST Bill and the IGST Bill. Based on the final version of the model GST Bill, the Centre, states and the union territories will finalise the CGST, SGST and UTGST Bills. The Centre plans to introduce the three supporting legislations for GST — CGST Bill, IGST Bill and the compensation for states Bill in the second phase of the Budget session beginning March 9. Subsequently, states will also have to ratify the SGST Bills in their respective legislative Assemblies.
The GST Council is scheduled to meet on March 4-5 to discuss the pending issues regarding the draft model GST, IGST and CGST Bills. After the legislative passage of the Bills, the GST Council will discuss fitment of rates to determine which goods and services be categories under which tax bracket.