3-Day GST Council Meet ends without finalising the rates structure

20 Oct 2016 Evaluate

The three-day meeting of the GST Council, chaired by Finance Minister Arun Jaitley, ended without finalising the rates structure after most States objected to a proposal to levy an additional cess over and above the Goods and Services Tax on ultra luxury and demerit goods such as big cars, aerated beverages and tobacco products.

The Centre had proposed the cess as a means to finance the compensation it will have to pay States, but number of States objected to the use of GST collections to finance GST and demanded that the Centre fund the compensations out of the Consolidated Fund of India instead of tax revenue mopped up from the GST system. Finance Minister Arun Jaitley later said that the council will meet next on November 3-4 to decide on the GST rates structure, adding that it can be frozen only after deciding whether compensation to States is to be funded out of the rate structure itself or from some special cess or some third source.

The Centre and states, however, did manage to reach a broad agreement on the formula for compensation to loss-incurring states and a cess over the peak rate to fund the compensation. The details of these would be worked out at the next meeting, before tax rates can be fixed. An informal consensus was also reached at the end of the two-day meeting of the GST Council on a four-slab tax structure of 6, 12, 18 and 26 per cent. The lower tariff will be for essential items and the highest bracket for luxury and sin goods like tobacco, cigarettes and alcohol, but a decision was put off to the next meeting. 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.

On tax structure, Jaitley said that they cannot under-tax or over-tax to keep rate slabs minimum. The attempt was to fit zero rated items while levying a 6 per cent tax on items that are currently charged 3-9 per cent tax. He further said that they will meet again on November 3-4 to decide on the tax rates.

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