Taking yet another step towards implementing a new indirect tax regime, the Goods and Services Tax (GST) Council – headed by Finance Minister Arun Jaitley – on Thursday cleared the draft State GST (SGST) and Union Territory GST (UTGST) bills.
Final drafts of the three other bills – Integrated GST (IGST), Central GST (CGST) and the Compensation bill – had been cleared by the Council in its previous meetings.
The CGST, UTGST, IGST and Compensation bills will now go to the Union Cabinet for approval, while the SGST Bill will be taken up by the individual state cabinets and assemblies, Jaitley told reporters at the end of the Council meeting. In its next meeting on March 31, the panel will consider supporting GST rules.
After getting the Cabinet nod, the bills are likely to be tabled together in Parliament by March 22-25 during the ongoing Budget session, a government official who did not wish to be named told BloombergQuint earlier in the day.
Once the bills are passed, another key meeting to present the slabs for various goods and services before the Council will take place, Jaitley said. July 1 continues to be the tentative date fixed for implementation of the new indirect tax regime, he added.
It would be critical for the government to immediately release the approved GST draft bills along with relevant rules and rate schedules for the industry to adequately assess its final impact and for a smooth transition, Krishan Arora, partner at Grant Thornton India LLP, said in statement.
Clearance of the Model GST Law is a warning bell for those who have not yet commenced their preparations for introduction of GST, said Sachin Menon, national head, indirect tax, KPMG in India in a note. The industry won’t get enough time to prepare if the states don’t pass the GST law latest by second half of April, he said.
A Cap On GST Cess
In November last year, the Council had decided on a four-tier rate structure for GST of 5 percent, 12 percent, 16 percent and 28 percent. A cess, over and above the highest rate, will be levied on demerit or ‘sin’ goods like tobacco, pan masala and luxury cars. That cess will be capped at 15 percent, Jaitley said on Thursday.
“These are not the actual cess charges, these are only the caps. Take, for example, luxury cars. If 28 percent is the tax (under GST), and the current tax is 40 percent, then the cess will be 12 percent. But for the purposes of empowerment, we have kept a cap of 15 (percent) on the cess even though we may end up imposing only 12 percent. We have kept a little of headspace,” the finance minister explained.
Welcoming the decision to ringfence the rate of cess on demerit goods at 15 percent, Rajeev Dimri, leader of indirect tax at BMR & Associates said in emailed statement, “This would provide certainty of maximum cess costs that the relevant sectors may need to consider in working out their pricing under GST regime. Any increase over these rates would require Parliament approval thereby ruling out the possibility of any unexpected overnight surge in cess rates.”
The cap on the GST cess has been added only as an enabling provision which may or may not be enforced, Jammu and Kashmir Finance Minister Haseeb Drabu told BloombergQuint. This is to ensure that the government will not have to approach the Parliament each time it needs to revise the cess, he added.
“An enabling provision has been added to the law because you don’t want even for 1 percent to go to 28 legislatures to revise it,” Drabu said.
The Council also approved a cap of Rs 4,170 per 1,000 sticks or 290 percent ad valorem or a combination of both for tobacco products, a government official told reporters asking not to be identified.
Luxury cars will attract a cess of as much as 15 percent, which is also the maximum cess that can be imposed on mineral water and aerated drinks. The cap on cess on pan masala will be 135 percent ad valorem. The environmental cess has been capped at Rs 400 per tonne, the official said.
Apart from these, “all other supplies” not included in the list will also attract a cess of 15 percent ad valorem. These items will be decided by the Council, he added.
The cess will be levied for a period of 5 years or more. According to the official, the Council has kept the option open for levying cess on any residual item as and when decided by the Centre and states.
The official also reiterated that the GST rate, including cess, on these goods would be close to the existing tax rate.