Moving one more step ahead on country’s biggest tax reform which is closer to reality, the Goods and Services Tax (GST) Council headed by Finance Minister Arun Jaitley on Thursday approved the remaining two crucial supplementary Bills — State GST (SGST) and Union Territory GST (UTGST).
The Council also capped 15 per cent cess as upper limit on top of the peak GST rate of 28 per cent which will be levied on luxury goods and aerated drinks. The Government’s proposed dream tax reform is all set to be implemented by July 1 as the Council has granted formal approval to all five legislations.
The Council has also agreed on a four-slab structure — 5, 12, 18 and 28 per cent — along with a cess on luxury and ‘sin’ goods such as tobacco.
Jaitley said the cess has been capped at 15 per cent as upper limit for the four to five commodities, including luxury cars and aerated drinks that fall in this category.
“The actual cess on demerit goods, which will help create a corpus for compensating States for any loss of revenue from GST implementation in the first five years, may be lower than the cap as the Council has kept a little headroom for future exigencies,” Jaitley said.
Explaining the tax structure, he said, “If a luxury car at present commands a total tax of 40 per cent, under the new indirect tax regime, a GST of 28 per cent plus 12 per cent cess would be levied to keep the tax incidence at the same level. And the 15 per cent cess cap would apply on luxury cars and aerated drinks, while on pan masala, the cess has been capped at 135 per cent ad valorem.”
However, a top official in the Finance Ministry said, “Tobacco cess will be capped at a mixture of Rs 4,170 per 1,000 sticks or ad valorem of 290 per cent. Cess on coal would be at Rs 400 per tonne. No decision has been taken to levy cess on bidis as of now.”
The Government is hoping the C-GST, I-GST, UT-GST and the GST Compensation laws will be approved in the current session of Parliament and State legislatures will soon clear the S-GST bills so that the new indirect tax regime can be rolled out from July 1.
“With the final approvals, the legislative exercise stands complete and July 1 is the tentative date of GST’s implementation.
The Government will try to get Parliament approval for GST laws expeditiously. Supporting GST laws will now be taken to the Cabinet and then to Parliament for approval,” said the Finance Minister, adding that the GST Council will further meet on March 31 for framing of rules for GST regime.”
He said the Council has granted formal approval to all five legislations after the Council’s 12th meeting on Monday and the final drafts of the three other Bills — Integrated GST (IGST), Central GST (CGST) and Compensation Bill — had been cleared by the Council in its previous meetings as well.
“With all five draft laws now being given the green signal by the Council, they will next be sent to the Cabinet for approval and subsequently to Parliament, which is currently in session, for the final nod,” he said.
The Council also approved an enabling provision for higher tax ceiling of 20 per cent under the SGST Bill and along with similar provision in the CGST Bill, the peak rate could be raised up to 40 per cent in aggregate in the future against 28 per cent prescribed as of now.
For now the four tax slabs will remain the same at 5 per cent, 12 per cent, 18 per cent and 28 per cent, but Revenue Secretary Hasmukh Adhia has assured that the maximum ceiling is only for future contingencies.
On the other hand, Jaitley, however, said, “The fitment relating to item-wise GST rates will now be worked by a committee of officers. It will also decide a cess on luxury and demerit items — luxury cars, aerated drinks, tobacco — to compensate states for any loss of revenue from implementation of GST in the first five years.”