Levy of cess better than additional tax to compensate states under GST regime: Arun Jaitley

Defending the proposal to levy cess on tobacco and luxury goods, Finance Minister Arun Jaitley has said that it is an option preferable over additional tax to compensate states under GST regime; otherwise the cost of funding through this route would be exorbitantly high and almost unbearable.

Jaitley further said that if the central government has to borrow money to fund states' compensation, it would add to its liability and increase cost of borrowing for the Centre, state governments as well as the private sector. He added that if cess is levied, states which benefit out of GST roll out, do not have to compensate the losing states.  On the crucial issue of the tax rate structure, which three earlier meetings of the GST Council failed to decide, Jaitley has said that a four-slab structure of 6, 12, 18 and 26 per cent is under consideration, with lower rates for essential commodities and higher ones for luxury goods, to ensure that the tax structure does not become regressive or burdensome to the common man.

He further said that different items used by different segments of society have to be taxed differently; otherwise the GST would be regressive and total tax eventually collected has to be revenue neutral. The Government should not lose money necessary for expenditure nor make a windfall gain.

Jaitley also said that cesses can be imposed which would be subsumed in the taxes after five years. He added that this would include clean energy cess and cesses on luxury items and tobacco products, which in any case, presently also pay levy higher than 26 per cent. This would ensure no additional burden on the tax payer and yet be able to compensate the losing states. He stated that the GST seeks to subsume most of indirect taxes and turn India into one market with uniform tax structure across the country.