As the government inches closer towards the rollout of the country’s  biggest indirect tax reform, the Goods and Services Tax (GST) Council headed by Finance Ministry Arun Jaitley is likely to finalise the rates that various goods and services will attract from July 1.

The two-day GST Council meet beginning today in Srinagar, will see participation from 29 states and union territories, along with Jaitley, and senior officials from the revenue department.

GST, billed as India’s most ambitious reforms move, will stitch together a common national market, dismantle fiscal barriers among states and consolidate a patchwork of local and central duties into a single levy.

An officers’ panel over the last six weeks had been working towards the fitment or classification exercise - an exhaustive list specifying the tax rate of goods and services, which would be presented to the Council meeting.

The Council had earlier agreed on a four broad slab structure -- 5, 12, 18 and 28 percent -- along with a cess on luxury and demerit goods such as tobacco, pan masala and aerated drinks.

The states would receive provisional compensation from Centre for loss of revenue due to abolition of taxes such as VAT (value added tax), octroi and implementation of GST. The compensation would be met through levy of a ’GST Compensation Cess’ on luxury items and sin goods like tobacco, for the first five years.

The cess on luxury goods have been capped at 15 percent. While the effective cess on goods such as "luxury" cars will 12 percent, the council has decided to fix a cap to give headspace for expansion in the future.

`Sin’ goods such as tobacco (cigarettes) and pan masala will attract cess rates of 290 per cent and 135 percent respectively, although the impact on current effective consumer prices will be negligible.

The fitment panel has been working on the principle to fix tax rates closest to the present incidence of taxation on good or services.

The final rates are expected to be fixed in a way such that the impact on inflation as well as revenue to the government is near neutral.

Certain items such as gold will fall outside the four-tier slab structure, and the final rate is expected to be finalized by tomorrow, taking opinion from all the states.

Based on the recommendation of the fitment panel, the Council is also likely to examine the option of placing services under two tax slabs—12 and 18 percent.

The move will likely even out the overall price impact on consumers who now pay tax of 15 percent on all services.

The original plan was to have a single tax rate—18 percent—for services under GST that would have made most services costlier under the new system.

A rate of 12 percent is also under consideration, especially for those services that would be regular for the common man such as air travel services, restaurants and renting of hotels.

Most services, except those in the negative list of essential services such as healthcare and education, will come under GST.

Some goods have also been identified that would be exempted from taxes. These commodities would include agricultural implements, foodgrains sugar, salt, fresh vegetables and few more items. The final list of rates will be placed today before the GST Council.

 18 May 2017, 07:19 AM