The Centre on October 18, 2016 proposed four slabs for the goods and services tax (GST) in addition to a cess on sin and luxury goods that will help it mop up close to Rs 50,000 crore to compensate states for any possible revenue loss under the new tax regime.
At a meeting of the GST Council, the Union finance ministry proposed slabs of 6%, 12%, 18% and 26%, along with a 4% levy on gold. For environmentally sensitive items such as coal (where a cess is already in place), sin goods such as aerated drinks, tobacco and pan maisala and luxury cars and watches, a cess has been suggested.
The cess will ensure that the levy on these items is not changed and the money raised will flow into a special fund to meet compensation requirements. While the cess on coal fetches Rs 26,000 crore annually, the tax on sin and luxury goods is expected to help the Centre mop up another Rs 24,000 crore.
Although goodsor services-wise classification will only be done once the states agree to the slabs, consumer durables and a. large number of FMCG products are expected to be in the 26% bracket. Currently, the total levy on consumer durables added up to around 27% along with another 4% burden due to central sales tax (CST). Under the proposed regime, the burden will reduce to 26%.
Overall, nearly a quarter of the burden due to CST and octroi would go away, while Krishi Kalyan cess would be subsumed in the overall GST levy. Last year, the states collected Rs 4.4 lakh crore, of which CST and octroi added up to around Rs 1 lakh crore.
According to the government, nearly half the items which are part of the consumer price index basket as well as key services such as health and education will be out of the tax net. Similarly, of all the goods, nearly a quarter will be part of the 26% slab, with 70% falling in the 6%, 12l or 18% slab.
The Centre also agreed to the compensation formula. It agreed to keep the base year for calculating the revenue of a state at 2015-16 and assumed a growth rate of 14% for calculating the likely revenue of each state in the first five years of implementation of GST.
The GST Council also discussed whether exemptions given by the states should be included in the definition at revenue for 2015-16 but it was decided that this would apply only to the eight 'states in the northeast and the three hill states.
At a meeting of the GST Council, the Union finance ministry proposed slabs of 6%, 12%, 18% and 26%, along with a 4% levy on gold. For environmentally sensitive items such as coal (where a cess is already in place), sin goods such as aerated drinks, tobacco and pan maisala and luxury cars and watches, a cess has been suggested.
The cess will ensure that the levy on these items is not changed and the money raised will flow into a special fund to meet compensation requirements. While the cess on coal fetches Rs 26,000 crore annually, the tax on sin and luxury goods is expected to help the Centre mop up another Rs 24,000 crore.
Although goodsor services-wise classification will only be done once the states agree to the slabs, consumer durables and a. large number of FMCG products are expected to be in the 26% bracket. Currently, the total levy on consumer durables added up to around 27% along with another 4% burden due to central sales tax (CST). Under the proposed regime, the burden will reduce to 26%.
Overall, nearly a quarter of the burden due to CST and octroi would go away, while Krishi Kalyan cess would be subsumed in the overall GST levy. Last year, the states collected Rs 4.4 lakh crore, of which CST and octroi added up to around Rs 1 lakh crore.
According to the government, nearly half the items which are part of the consumer price index basket as well as key services such as health and education will be out of the tax net. Similarly, of all the goods, nearly a quarter will be part of the 26% slab, with 70% falling in the 6%, 12l or 18% slab.
The Centre also agreed to the compensation formula. It agreed to keep the base year for calculating the revenue of a state at 2015-16 and assumed a growth rate of 14% for calculating the likely revenue of each state in the first five years of implementation of GST.
The GST Council also discussed whether exemptions given by the states should be included in the definition at revenue for 2015-16 but it was decided that this would apply only to the eight 'states in the northeast and the three hill states.
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