A four-tier Goods and Services Tax (GST) structure of 5, 12, 18 and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by the GST Council at a meeting here today, Union Finance Arun Jaitley said.
Jaitley, who heads the all-powerful GST Council, said that the items of mass consumption will be kept under the lowest tax slab of 5 per cent while luxury items will come under the highest tax slab of 28 per cent.
With a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
The government plans to roll out the new tax regime from April 1, 2017. The Finance Minister also said that the preparation for the GST rollout is going on as per schedule.
Announcing the decisions arrived at the first day of the two-day GST Council meeting, Jaitley said the highest tax slab will be applicable to items which are currently taxed at 30-31 per cent (excise duty plus VAT).
Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate.
The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.
The cess, he said, would be lapsable after five years. Jaitley said about Rs 50,000 crore would be needed to compensate states for loss of revenue from rollout of GST, which is to subsume a host of central and state taxes like excise duty, service tax and VAT, in the first year.
The structure agreed to is a compromise to accommodate demand for highest tax rate of 40 per cent by states like Kerala.
While the Centre proposed to levy a 4 per cent GST on gold, a final decision was put off, Jaitley said.
At the last meeting, the Council agreed on keeping base year for calculating the revenue of a state at 2015-16, and considering a secular growth rate of 14 per cent for calculating the likely revenue of each state in the first five years of implementation of GST.
The 4-tier tax structure agreed to has slight modification to the 6, 12, 18 and 26 per cent slab that were under discussion at the GST Council last month.
States getting lower revenue than this would be compensated by the Centre.
As some states preferred a higher tax slab over cess, Jaitley contented that the cost of funding compensation through an additional tax would be "exorbitantly high and almost unbearable".
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