Ending months of speculation, the Goods and Services Tax (GST) Council on Thursday finalised the tax rates that will be applicable once the new indirect tax regime comes into force.
The GST Council has decided four slabs—5%, 12%, 18% and 28%—for the tax, finance minister Arun Jaitley said after a meeting on Thursday.
On certain ‘demerit’ goods such as tobacco, the central government will also levy a cess, the proceeds from which will be used to compensate producer states that will stand to lose out on revenue once the GST regime comes into force.
Jaitley, who heads the council, said that such a compensatory mechanism will be in place for five years to begin with, and that during the first year, the cess is likely to yield Rs 50,000 crore.
Although the central government had sought the highest tax slab at 26%, the states had wanted the figure to be between 28% and 30%.
As per the slabs put in place, the threshold rate of 5% will apply on items of mass consumption that the common man uses while other items will be taxed at 12% and 18%. Commodities such as aerated drinks, luxury cars and white goods like air conditioners, televisions and washing machines will be taxed at 28%.
Tobacco and pan masala, too, would be taxed at 28%, but will also attract a cess in addition to the tax rate. There is no immediate clarity on the tax rates applicable to services.
A so-called ‘sunset clause’ on the cess will be built into the legislation that the government plans to bring in the winter session of Parliament later this month.
Half the items in the Consumer Price Index basket, which determines retail inflation, will not attract any tax. This will include food grains.
Although luxury cars will be taxed at 28%, there is little clarity yet on what exactly is a ‘luxury car’.
A 28% tax rate means that white goods, which at present attract a tax of 30-31%, could become cheaper. There is, however, no final decision on how gold will be taxed under the new regime. The government had initially proposed a 4% tax rate on gold. A decision on this is likely to be taken on Friday when the council meets again.
On Friday, the council will also deliberate on the issue of dual control of the Centre and states when it comes to assessing entities. As per an earlier proposal, while the states were to assess entities with an annual turnover of up to Rs 1.5 crore, both the Centre and states were to jointly assess entities with revenue above this threshold. News reports say that on Friday, the Centre could propose that the power of scrutiny should be jointly with both the union and states, without any thresholds.
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