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GST Council Clears Central And Integrated GST Laws, Paving The Way For July Rollout

With this, the compensation, IGST and CGST laws have now been cleared by the GST Council.



Workers carry bags of tea on their heads while loading a truck at the Korangani Tea Estate in the Dibrugarh district of Assam. (Photographer: Sanjit Das/Bloomberg)
Workers carry bags of tea on their heads while loading a truck at the Korangani Tea Estate in the Dibrugarh district of Assam. (Photographer: Sanjit Das/Bloomberg)

Moving a step closer to implementation of a new indirect tax regime, the Goods and Services Tax (GST) Council headed by Finance Minister Arun Jaitley on Saturday approved the crucial Central GST (CGST) and Integrated GST (IGST) bills.

"...the compensation law was approved in last meeting, today we have approved the CGST and IGST law, and in next meeting we will be approving the SGST (State GST) and UTGST (Union Territory GST) law which will then complete the legislative exercise and enable us to take these before Parliament," Jaitley said at a press conference at the end of the Council meeting.

The SGST and UTGST bills will be taken up at the next meeting of the GST Council scheduled for March 16. The SGST Bill will be circulated among the states in the next three days, the finance minister added.

After the Council clears the two remaining bills, the Centre will take all four, namely the CGST, UTGST, IGST, compensation bills to the Union Cabinet for its approval. Subsequently, the bills will be tabled together in parliament in the second half of the Budget session.

Jaitley reiterated that the July 1, 2017 deadline for rolling out the new indirect tax regime now looks like an optimistic target.

Hopefully, the laws will be before parliament in this session and subject to parliament approving them , July 1 this year now optimistically looks like possible date for implementation.
Arun Jaitley, Finance Minister

The approval of IGST and CGST is a significant development, and the July 1 rollout deadline looks more realistic now as these bills will be tabled in the upcoming session of the parliament, Krishan Arora, partner at Grant Thornton India LLP told BloombergQuint over the phone. And while large companies are prepared for a July 1 GST rollout, smaller businesses still face issues with the new information technology network, he added.

GST Cap Rate Higher Than 28 Percent

Revenue Secretary Hasmukh Adhia told reporters at the same press conference that the GST cap rate will be increased to 40 percent, so that once the cess applicable under the new indirect tax regime is phased out – most likely after a period of five years – the Council does not have to seek Parliament’s and state assemblies’ approval afresh. This provision has been added in the compensation bill. The existing tax rate structure of 5, 12, 18, 28 percent will remain unchanged.

“The Council felt, in order to leave some scope for higher GST rate, and particularly after the period of 5 years where we might have to merge the cess with GST tax. So the Council decided to have a higher limit which is authorised by the parliament and the assembly,” Adhia said.

A ceiling on the cess – which will be imposed on demerit goods – will likely be decided by the GST Council after March 16, one finance ministry official who did not wish to be named told reporters. The cess will be imposed on sin goods like luxury cars, pan masala, and other tobacco items for a period of five years. It will be collected in a compensation fund which will be used to compensate state if they incur losses in the first five years of the GST rollout.

Responding to demands from the industry, the Council decided that small restaurants and hotels with a turnover of less than Rs 50 lakh will pay a tax of 5 percent, the revenue secretary added. The remaining restaurants will pay the regular service tax rate.

Earlier in the day, West Bengal Finance Minister Amit Mitra had said while the IGST and CGST laws had broadly been cleared, the states had wanted 26 minor changes. He further said that IGST, which relates to taxation of inter-state transfer of goods, will provide for cross empowerment of state and central officers.

J&K Finance Minister Haseeb Drabu said the Centre had accepted the proposals and the Council would take a final view on the two laws in its next meeting. Once the decks are cleared, the government will introduce the Model GST Law, which provides a common draft of CGST law, SGST law, IGST law, UTGST law and compensation law, in parliament.

Last month, the GST Council cleared the draft compensation law, according to which the Centre will have to fully compensate states for any revenue loss for the first five years after migrating to the new tax system.