“One main issue in today’s (Tuesday) agenda was to calculate the compensation for states and this matter was concluded in the discussions held,” Jaitley, who chaired the session, said here following the third meeting of the council. The meeting is slated to continue for the next two days.
Declaring that 2015-16 has been agreed upon as the base year for calculating compensation, Jaitley said the council has agreed on the parameters to be included in the definition of revenue for compensating states.
Jaitley also said that the council has decided proposed four slabs for the goods and services tax (GST) in addition to a cess on sin and luxury goods that will help it rake in 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 on Tuesday, the Union finance ministry proposed slabs of 6 pc, 12 pc, 18 pc and 26 pc, along with a 4 pc levy on gold.
Revenue Secretary Hasmukh Adhia said: “For environmentally sensitive items such as coal (where a cess is already in place), sin goods such as aerated drinks, tobacco and pan masala 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.
GST Rate Structure
The council will discuss the crucial issue of GST rates on the second day of its meeting on Wednesday.
“At least five rate structure options were presented to the council today,” Jaitley said, adding that the final structure will be decided after discussing and analysing all of them.
“The rate structure should be such that it does not lead to further CPI (consumer price-indexed) inflation. Revenue must be such that states and the Centre are able to discharge their functions, putting the least burden on the taxpayer,” he said.
“Once the rate structure is finalised, the technical group of officers will decide which items will attract which rate,” he added.
All About GST
The GST is a single indirect tax that proposes to subsume most central and state taxes like the Value Added Tax, service tax, central sales tax, excise duty, additional customs duty and special additional customs duty.
The states will, however, be able to adopt a GST structure that is different from that recommended by the GST Council and the council recommendations will not be binding on the states.
Parliament and state assemblies have the right to accept those recommendations in their GST Bills.
While the pan-India overhaul of India’s indirect tax regime has got the support of more than 20 states, Tamil Nadu’s ruling AIADMK had walked out before the voting on the Bill began, both in the Rajya Sabha and the Lok Sabha.
The party had wanted some changes in the Bill, such as imposition of four per cent additional tax on inter-state trade and transfer of money thus collected to the state of origin of the goods.
Meanwhile, India Inc. has pitched for an 18 per cent standard rate on the ground that this rate will generate adequate tax buoyancy without fuelling inflation.
The opposition Congress had earlier demanded an 18 per cent cap on the GST rate.
The Federation of Indian Chambers of Commerce and Industry (FICCI) suggested that to check inflation and the tendency to evade taxes “the merit rate should be lower and the standard rate reasonable”.
(With inputs from IANS)