• As the first day of council meeting concluded on Tuesday, the GST council managed to arrive at a consensus on how to compensate the state for losses they incur on account of tax reform that subsume various state and central levies.
  • However, Council has not yet arrived at a conclusion on the crucial GST rate structure. As per Finance Minster Arun Jatiley, the proposal for four tier structure was discusses.

Rate structure under GST:

  • The Basic structure: The center proposes four-slab GST tax structure:

    Particulars Proposed GST rate
    Lower Rate 6%
    Standard 1 Rate 12%
    Standard 2 rate 18%
    Higher Rate 26%

    However, there is also proposal to impose an additional cess.
  • Food item will continue to exempt from tax. As much as 50% of the common use goods will either be in the exempt category or lower band.
  • Also, 70 percent of the items is proposed to be governed by 18 percent of lower GST rate. However, ultra-luxury items such as high-end cars and demerit goods like tobacco, cigarettes, aerated drinks, luxury car and polluting items would attract an additional cess on top of the 26 percent GST rate.
  • On gold, the GST rate suggested was 4 percent. FMCG and consumer durable products would attract 26 percent GST rate, against the current incidence of around 31 percent.
  • Taxation of services would, however, be only in the 6 percent, 12 percent and 18 percent range, with the higher rate being 18 percent.

Virtues of the proposed structure:

  • The overall impact on the consumer price index is likely to be (-)0.6%.
  • Estimate of inflation impact on health services is 0.56 percent, fuel and lighting 0.05 percent and clothing 0.23 percent, transport (-)0.65 percent, education (-)0.08 percent and housing (-)0.09 percent. It also says the Centre's estimated revenue collection is Rs 8.72 lakh crore as per this structure.
  • The proposal to impose a cess will help create a fund of Rs 50,000 crore, which can be used to compensate the states.

Nangia's take

GST council is moving ultra-fast towards the timely implementation of GST from 1st April 2017. GST council also finalized the compensation formula for states for calculating compensation for states in the first five year of implementation. With this speed of GST council, April 2017 is a doable target. Government has proposed a slab rate structure under GST, it would also increase the revenue of government in comparison to current tax scenario of indirect taxation, which is still under discussion in GST Council.

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