GST rate structure finalised, majority of items in 12% and 18% tax slabs

On demerit and sin goods like aerated drinks, luxury cars, tobacco and pan masala, a cess will be levied by the centre over and above the 28% GST rate

d services tax (GST), the centre and the states managed to reach a consensus on the tax rates and the tax slabs under this ambitious tax regime.

The decision, arrived at by a consensus, proposes a multi-tiered tax system aimed at minimizing the inflationary impact on the common man, finance minister Arun Jaitley said at a press conference after the end of the first day of the fourth GST council meeting.

As per the rate structure agreed upon by the centre and the states, 50% of the items present in the consumer price index basket, including foodgrains like rice and wheat, will be exempted from the levy of GST.

The lowest tax slab will be 5% wherein items of mass consumption will be taxed. There will be two standard rates of 12% and 18% where a majority of the items used by the common man will be taxed. There will be a higher slab of 28% where items currently attracting a tax of 27-31% will be taxed. However, items used by the middle class like toothpastes, soaps and oil which currently have a high tax incidence of more than 27% will be brought down to the lower slab of 18%.

On demerit and sin goods like aerated drinks, luxury cars, tobacco and pan masala, a cess will be levied by the centre over and above the 28%. This amount along with the proceeds of the clean energy cess will be used to compensate states for losses arising from GST. However, this cess will have a sunset clause of five years.

A technical committee comprising of central government and state government officials will finalize the allocation of items into different rate categories. The tax rate on gold will be decided after this allocation of items.

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Essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.

A four-tier GST tax structure of 5, 12, 18 and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by the GST Council on Thursday.

With a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.

The lowest rate of 5 per cent would be for common use items while there would be two standard rates of 12 and 18 per cent under the Goods and Services Tax (GST) regime targetted to be rolled out from April 1, 2017.

Announcing the decisions arrived at the first day of the two-day GST Council meeting, Finance Minister Arun Jaitley said highest tax slab will be applicable to items which are currently taxed at 30-31 per cent (excise duty plus VAT).

Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate.

The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.

The cess, he said, would be lapsable after five years.

Mr. Jaitley said about Rs. 50,000 crore would be needed to compensate states for loss of revenue from rollout of GST, which is to subsume a host of central and state taxes like excise duty, service tax and VAT, in the first year.

The four-tier tax structure agreed to has slight modification to the 6, 12, 18 and 26 per cent slab that were under discussion at the GST Council last month.

The structure to agreed is a compromise to accommodate demand for highest tax rate of 40 per cent by states like Kerala.

While the Centre proposed to levy a 4 per cent GST on gold, a final decision was put off, Mr. Jaitley said.