GST Council Finalises Four-Tier Tax Structure
The tax rate slabs have been fixed at 5 percent, 12 percent, 18 percent and 28 percent.
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The GST Council, at its fourth meeting today, decided on a four tier Goods and Services Tax rate structure.
The tax rate slabs have been fixed at 5 percent, 12 percent, 18 percent and 28 percent, Finance Minister Arun Jaitley said in a press conference in New Delhi.
Essential commodities, including 50 percent of the goods in the current consumer price index (CPI) basket, will be taxed at zero percent under GST.
Items of mass consumption constitute the second category and will be taxed at 5 percent, lower than the earlier proposed 6 percent, Jaitley said.
In lowering the rate on common use items from expected 6 per cent to revised rate of 5 per cent, the interests of common man seem to have played a key role. It would be interesting to know what the Government deems as common use items.Prashant Deshpande, Partner, Deloitte Haskins & Sells LLP
Most other products and services will be taxed at standard tax rates of either 12 or 18 percent.
Luxury items such as luxury cars and aerated drinks and sin goods such as alcohol, and tobacco products which will attract a 28 percent tax or more.
The additional revenue that we will get by this 28 percent category would be used to compensate the other three categories so that the GST itself has a progressive character.Arun Jaitley, Finance Minister
In his media briefing Jaitley said that some items in the highest rate slab will also attract a cess. This cess, as proposed earlier, will be equal to the difference between the current applicable tax on that item and 28 percent. The cess rate will be reviewed every year and will have a sunset clause of five years.
In fact, tobacco is about 65 percent and the others are close to 40 percent, in some case 40 plus/minus, in that range. So the additional amount to be charged on these products or any other product which fits into this category would be currently charged as a cess. Now this cess plus the clean energy cess on coal users, jointly will constitute the compensation pool.Arun Jaitley, Finance Minister
The money collected via cess over the five year period will be used to compensate the states for the same period. Jaitley said the total compensation amount for the first year is estimated at Rs 50,000 crore.
Tax experts say the impact of these rates on consumers and business will only be known after the Council determines the classification of goods and services into the rate slabs.
The classification of goods into the four rate slabs should be done very carefully ensuring that 5 percent, 12 percent and 18 percent are applied in a fair manner without much scope for arbitrage across slabs.MS Mani, Senior Director, Deloitte Haskins & Sells
While the rate structure is similar to what was proposed initially by the GST council, it all depends on what item is in which bracket to understand the impact on the overall GST structure. The effort of the government is to keep the revenue neutrality and also keep the change in tax incidence at a minimum.Bipin Sapra, Tax Partner, EY India
Jaitley said the classification of goods and services will be soon be worked on by the Ministry and Council.