GST council discusses four-tier tax structure under GST

19 Oct 2016 Evaluate

Moving swiftly on the road to formalizing the biggest reform of the indirect tax regime, Finance Minister Arun Jaitley in a first day of three-day GST council meeting discussed four slab tax rate structure of 6 per cent, 12 per cent, 18 per cent and 26 per cent with lower rates for essential items and the highest for luxury goods that will also be levied with an additional cess.

During the meeting, the lowest tax rate proposed was to be imposed on essential items and 18 per cent on most of the items. The highest tax rate of 26 per cent was reserved for luxury and sin products like tobacco. FMCG and consumer durable products too were proposed to attract 26 percent GST rate, against the current incidence of around 31 percent. With a view to keep inflation under check, the proposal sponsored by the Centre proposed to continue exempting food items from tax as well as keep 50 percent of the common use goods in either exempt category or lower band.

The Finance Minister said that the GST Council discussed five alternatives of GST rate structure, though no decision was taken. Tt 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).

The council also reached an agreement on the formula for payment of compensation to states from any loss of revenue from implementation of Goods and Service Tax (GST) in the first five years beginning April 1, 2017. The panel agreed on keeping base year for calculating the revenue of a state at 2015-16 and considering a secular growth rate of 14 percent for calculating the likely revenue of each state in the first five years of implementation of GST.

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