India took a big step towards rolling out a unified a goods and services tax (GST) with the Centre and states agreeing on a four-slab structure –5, 12, 18 and 28 percent—along with a cess on luxury and `sin’ goods such as tobacco.
The final rate structure agreed on Thursday has brought down the lowest slab by one percentage point to 5 percent, while raising the highest rate by two percentage point to 28 percent.
Around 50 percent of the items in the retail inflation basket, primarily food items, will be kept out of GST.
“There will be a zero tax on such items. The object of this is to ensure that the GST structure is not burdensome on the common man,” Jaitley told newsmen after the GST council meeting.
A lower tax slab of 5 percent is proposed for those essential commodities on which no excise duty is levied at present by the centre but a 5 percent value-added tax is levied by the states.
There will two standard rates of 12 percent and 18 percent that will be applicable to a majority of the taxable goods.
The effective tax on most white goods such as refrigerators is between 30 to 31 percent, which includes a 12.5 percent central excise duty, state value added tax (VAT) of 14.5 percent and cascading effect about four percentage points.
After GST, the effective tax rate on most of these goods will come down to 28 percent.
A decision on tax on gold has been deferred. “It tax on gold will be decided after the fitment of the remaining items,” Jaitley said.
A secretaries’ panel will now decide to work out the nitty-gritty of the fitment
system, clubbing hundreds of goods in the four slabs.
A decision on taxation of services will be taken later, Jaitley said.
The GST council has also agreed on the Centre’s proposal to impose a cess on luxury goods for five years to create a dedicated corpus to compensate states for potential revenue losses after migrating to GST.
The Constitutional amendment guarantees a five year compensation to these States.
The Centre estimates total compensation to states for losses arising from a transition to GST to be around Rs50,000 crore in the first year. This will be met through a fund—Rs26,000 crore will come from the corpus generated by the levy of the clean environment cess on coal and Rs 24,000 crore collected from the cesses to be levied on demerit goods such as tobacco, luxury cars, pan masala and aerated drinks.
These goods will continue to be taxed at their current rates. For instance, tax on tobacco will continue to remain at about 60 percent.
“The cess will come with a sunset clause of five years,” Jaitley said. “This will be reviewed on a year-to-year basis and the council will decide the flexibility of this pool,” he said.
“The cess is not an additional levy and its incidence will not be a single rupee on the consumer”.
GST within sight as Centre states agree on fourrate structure
The final rate structure agreed on Thursday has brought down the lowest slab by one percentage point to 5 percent, while raising the highest rate by two percentage point to 28 percent.
Around 50 percent of the items in the retail inflation basket, primarily food items, will be kept out of GST.
“There will be a zero tax on such items. The object of this is to ensure that the GST structure is not burdensome on the common man,” Jaitley told newsmen after the GST council meeting.
A lower tax slab of 5 percent is proposed for those essential commodities on which no excise duty is levied at present by the centre but a 5 percent value-added tax is levied by the states.
There will two standard rates of 12 percent and 18 percent that will be applicable to a majority of the taxable goods.
The effective tax on most white goods such as refrigerators is between 30 to 31 percent, which includes a 12.5 percent central excise duty, state value added tax (VAT) of 14.5 percent and cascading effect about four percentage points.
After GST, the effective tax rate on most of these goods will come down to 28 percent.
A decision on tax on gold has been deferred. “It tax on gold will be decided after the fitment of the remaining items,” Jaitley said.
A secretaries’ panel will now decide to work out the nitty-gritty of the fitment
system, clubbing hundreds of goods in the four slabs.
A decision on taxation of services will be taken later, Jaitley said.
The GST council has also agreed on the Centre’s proposal to impose a cess on luxury goods for five years to create a dedicated corpus to compensate states for potential revenue losses after migrating to GST.
The Constitutional amendment guarantees a five year compensation to these States.
The Centre estimates total compensation to states for losses arising from a transition to GST to be around Rs50,000 crore in the first year. This will be met through a fund—Rs26,000 crore will come from the corpus generated by the levy of the clean environment cess on coal and Rs 24,000 crore collected from the cesses to be levied on demerit goods such as tobacco, luxury cars, pan masala and aerated drinks.
These goods will continue to be taxed at their current rates. For instance, tax on tobacco will continue to remain at about 60 percent.
“The cess will come with a sunset clause of five years,” Jaitley said. “This will be reviewed on a year-to-year basis and the council will decide the flexibility of this pool,” he said.
“The cess is not an additional levy and its incidence will not be a single rupee on the consumer”.
GST within sight as Centre states agree on fourrate structure
