The Centre has come up with a four-slab rate structure for the Goods & Services Tax, ranging from zero to 26 per cent. The structure proposes the GST at 0 per cent on an array of goods and services, including food, health, and education services, and 26 per cent on luxury items such as fast-moving consumer goods and consumer durables.
Revenue Secretary Hasmukh Adhia said, "The principle for determining the rate on each item being proposed is to levy and collect the GST at the rate slab closest to the current tax incidence on it." The GST is proposed to be levied at 6 per cent, 12 per cent, or 18 per cent on the remaining goods and services. The rate proposed on all items is mostly lower than the current rate. The proposal retains just the Clean Environment Cess from the multitude currently in place, with the GST subsuming all the others, includign the Swachh Bharat Cess, the Krishi Kalayan Cess, and the Education Cess. Adhia said that the proposal envisages 10 per cent of the current tax revenue collections base to fall in the 6 per cent GST slab and about 70 per cent in the 12 per cent and 18 per cent slabs.
Around 25 per cent of the current tax revenue base falls in the proposed 26 per cent slab, including items that attract cess. The GST Council will finalise the GST rate structure this week. Finance Minister Arun Jaitley said the Council will finalise the GST rates structure keeping in mind the need to prevent inflation in consumer prices and protecting the revenues of both, the Centre and the States. He added that the Council has reached a consensus on the modalities for determining the payments that will become due for compensating States that would lose revenues on account of the shift to the GST.
The proposal has already garnered a lot of opposition, with states like Kerala and Tamil Nadu not amused with the plan to levy a cess on luxury goods, suggesting instead that the top slab of 26 per cent be increased. They backed a higher burdeon on tobacco, insisting that the lowest slab of 6 per cent be reduced to 5 per cent. "Some states questioned the rationale for a cess as it went against the overall principle of GST. It is for the Centre to find resources," a state FM said. Kerala Finance Minister Thomas Isaac suggested that 26 per cent rate be increased to do away with the need for cess. "Currently, the tax on durables is 34-48 per cent. Why give them a lower rate whent the benefit will not be passed on to consumers? Instead, we should look to lower the burden in lower slabs," he said.
Sources said the government didn't want the tax burden to increase and the cess was an interim measure to deal with compensation and it would be tapered off over the next five years once the Centre won't have to pay compensation.
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