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GST Council all important meeting in November: By CA Rashmi Jain

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.

The Basic structure: The center proposes four-slab GST tax structure:

Particulars
Proposed GST rate
Lower Rate
6%
Standard 1 Rate
12%
Standard 2 rate
18%
Higher Rate
26%

  • Food item will continue to exempt from tax. As much as 50% of the common use goods will either be in the exempt category or lower band.
    · Also, 70 percent of the items is proposed to be governed by 18 percent of lower GST rate. However, ultra-luxury items such as high-end cars and demerit goods like tobacco, cigarettes, aerated drinks, luxury car and polluting items would attract an additional cess on top of the 26 percent GST rate.
    · On gold, the GST rate suggested was 4 percent. FMCG and consumer durable products would attract 26 percent GST rate, against the current incidence of around 31 percent.
    · Taxation of services would, however, be only in the 6 percent, 12 percent and 18 percent range, with the higher rate being 18 percent.

It is estimated that 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.

  1. The proposal to levy cess of luxury and demerit goods ( not defined in GST Model Law) has already affected the automotive industry with the latest reports coming in newspapers today. As a concept, cess is avoidable and industry will not be happy as it will tend to complicate GST system. Till date the idea has been to merge all cesses on goods and services within GST and allow credit through the chain.

With multiple GST Structure rate already there are views that GST in India is a flawed GST. Now the FM proposed to levy a further cess on so called SIN and luxury goods to generate an extra 50000 crores so that the States could be compensated for the estimated losses. And this Cess may never go, I am sure. Why where these issues not thought when the GST debate was going on in the Parliament? Why was this not put to the public domain? Now, the financial fall outs are being debated; these should have debated first. Whatever the tax rates on luxury or demerit goods must be imposed to generate revenue neutrality. A non-vatable CESS, My Take view is, shall further complicate already perceptually flawed GST Regime that is expected in India. Nowhere in the world such a GST system was introduced on comparable basis. This proposal hits the GST soul itself and must be opposed by the States not for partisan reasons but for the benefit of the tax reform. Who gets more cess pie is not the question here but the question is this the GST that we expected? As a professional, I think such a GST regime will complicate things beyond repair, if not handled very carefully by the Centre and the States.

Whether the tax rates shall be very high on demerit goods like luxury cars; tobacco etc. is not the concern of the Citizens; whether income tax rates are jacked up is also not the question common man faces; whether corporate tax rates under IT Law go up is also not the question common man should face; the question is that such a major indirect tax reform should not be built like this as it will harm the tax system in a big way. Tomorrow States might pick up some Constitutional provisions and start levying cess? Will that be opposed by the Centre? The answer is no.

Let us wait; how India GST unfolds and what further surprises are in Store

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Profile photo of CA Rashmi Jain CA Rashmi Jain

New Delhi, India

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