In’cess’ant GST debate: Centre & States agree to disagree
|Although the GST Council in its third meet did come up with a proposal of a four- tier GST structure, it remained inconclusive on the final structure as states and the Centre decided they needed more time.
1) What is the four tier GST structure?
The GST Council has proposed a four-tier GST structure starting from 6 percent, two standard rates at 12 and 18 percent and the highest one at 26 percent with a further cess for luxury and demerit goods like tobacco and aerated drinks.
Demerit goods are goods which may be unhealthy for consumption or may be socially undesirable.
The GST on precious metals like gold is going to be set at 4 percent.
2) Objectives in Centre’s mind while coming up with the rate structure?
Finance Minister Arun Jaitley says on the objective of setting such a rate structure, “The broad approach has been that the rate structure should be such that it does not lead to any further CPI inflation; states should have adequate revenue and also the Centre, so as to discharge their obligations, and this has to be blended with only the least possible burden which has to be put on the taxpayer. The revenue model should be such that it has some additional resources which could be used for revenue payment, for compensation payment to any losing state.”
3) In which slab do most goods fall?
Around 50 percent of taxable goods will fall under the standard rates of 12 and 18 percent. Luxury and ‘sin’ goods will form around a fourth of the 300 goods that are taxable. These will be taxed at 26 percent with an extra cess, whose rate has not been decided.
4) How will the cess be determined?
The cess will be determined based on the product on which it is being levied. For example, the cess charged for a high-end luxury car may be different from the cess charged on a bidi.
5) Why the extra cess?
This extra cess will generate around Rs 50,000 crore according to the Centre and will help in compensating the States if they have a shortfall in revenues due to the implementation of GST.
6) How will the shortfall in revenues be calculated?
A compensation formula is proposed by the GST Council wherein a 14 percent tax revenue growth for states is assumed over a time period of the first five years – which is the period for which states will be compensated – from the base year (2015-2016). States that earn tax revenue less than the assumed amount will be compensated.
7) How much could be the estimated tax collection based on the proposed tax structure?
Based on 2015-2016 estimates, the total revenue is estimated to be about Rs 8.72 lakh crore.
8) Some states are against the cess. Why?
Some states have a problem with the extra central cess, as they feel the Centre would end up with more revenues. The states want another tier or the 26 percent slab to be raised so that they earn more out of luxury and sin goods.
9) India Inc is also against it?
According to a report in Business Standard, India Inc does not mind paying a higher tax for luxury goods if it helps in making the GST simpler. It says adding the extra cess beats the purpose of having a new tax reform.
10) Why removing the cess may be a problem?
The cess makes charging luxury and sin goods easier. It would be very difficult to fit two separate classes of goods into one single GST slab. If the cess is removed, it would mean that the GST Council would have to make another 2-3 slabs and make things more complicated.
11) How will the rate structure affect CPI inflation?
According to the GST Council, the impact on the CPI inflation will be a mere (-) 0.06 percent. Jaitley has also said that only 50 percent goods in the CPI basket will be taxed in the new regime. So most mass consumed items will not be taxed in this new proposal.
12) When would the rates be finalised?
The Council is likely to finalise the GST rates in its next meeting between November 3-4 or when it meets again on November 9.