Amid concerns, Niti Aayog supports four-slab GST & cess on sin goods

There is ongoing debate whether GST, which is to be rolled out from April 1 next year, should be a single rate regime or should it have multiple rates.
 NEW DELHI: NITI Aayog, government’s premier think tank, has supported a four-slab structure for the goods and services tax (GST) and backed the proposed cess on luxury and sin goods.

“A four slab rate structure for GST is better than going in one go on to a single rate as in the latter price effect on specific products could be substantial,” Aayog vice-chairman Arvind Panagariya said on Monday.

He said this structure would ensure less inflationary implications and lower tax rates for consumers as well as revenue predictability for the exchequer.

Aayog’s backing to the Centre’s proposal comes after several critics have questioned the proposed structure saying that it would dilute the original idea of a single unified rate.

The GST Council, which will finalise the GST rates, had failed to come to an agreement after three rounds of meetings last week with some states opposing the Union finance ministry’s proposal to levy a cess on ultra-luxury goods, tobacco and pan masala and for clean energy and instead favouring a higher tax rate on consumer durables.

According to Panagariya, the revenues loss prospects under four slabs will be much less as opposed to a single rate, it would be predictable and would give a better picture of what the unified rate could be going forward. “GST is a process and we are gradually heading towards it,” he said.

The Centre had proposed a four slab rate structure for GST, ranging from 6% to 26%.

The structure proposes zero GST on a host of goods and services, including food, health and education services, and slabs of 6%, 12%, 18% and 26% on remaining goods and services with the highest tax on luxury items such as fast-moving consumer goods and consumer durables.

On consumption of ultra-luxury items and demerit goods, such as big cars and tobacco products, it proposes imposition of a cess over and above the GST rate.

Supporting the imposition of the proposed cess, Panagariya said it is temporary in nature and could be withdrawn anytime. “The Centre has to compensate states for revenue loss. Keeping it separate from tax rate will mean that it can be withdrawn anytime,” he said.

The Centre requires over Rs 50,000 crore for compensating the states for any revenue loss under GST for the next five years and had proposed to fund it through the cess.

Commenting on whether GST rollout can meet the April 1deadline, Panagariya said the government is working towards it. “It’s a little bit of race against time but certainly well within the realm of possibility,” he said.

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