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GST Council reaches consensus on compensation to states

By PTI
18 October, 2016

The GST Council on Tuesday discussed possible Goods and Service Tax rates, including a four-slab structure of 6, 12, 18 and 26 per cent with lower rates for essential items and highest band for luxury goods, even as it reached consensus on payment of compensation to states.

The all-powerful panel, headed by Finance Minister Arun Jaitley and includes representatives of all states, reached a consensus on the way states would be compensated for any loss of revenue from implementation of the new indirect tax regime from April 1, 2017.

Base year for calculating the revenue of a state would be 2015-16 and secular growth rate of 14 per cent would be taken for calculating the likely revenue of each state in the first five years of implementation of GST, Jaitley told reporters here.

States getting lower revenue than this would be compensated by the Centre.

The GST Council on the first day of its three-day meeting discussed five alternatives of GST rate structure, he said, adding no decision was taken and discussions would continue tomorrow.

A four-slab structure of 6, 12, 18 and 26 per cent with a cess on the highest band for ultra luxury and demerit items like tobacco being levied was discussed.

Food items are proposed to be exempt from the tax and 50 per cent of the items of common usage will be exempt to keep the inflation under check. The lower rates would be levied on essential items and the highest for luxury and demerit goods.

The cess would help create a compensation fund to help compensate states for any loss of revenue from implementation of the new indirect tax regime that will subsume a host of central and state taxes including excise duty, service tax and VAT.

Kerala Finance Minister Thomas Issac said his state government wanted the highest rate to be fixed at 30 per cent so that common man items can either be exempt or levied with lower tax rates.

The compensation to states would be “limited to taxes subsumed into GST,” he said.

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GST Council reaches consensus on compensation to states

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