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The high power GST council chaired by Finance Minister Arun Jaitley agreed on a four-tier tax structure of 5%, 12%, 18% and 28% that will be effective from April 1, 2017.
While the lowest rate has been fixed at 5% for items of common use, luxury and de-merits goods would attract an additional cess over and above the highest tax rates. Luxury cars, tobacco, and aerated drinks also fall in the top category. The additional cess will, however, be lapsable after 5 years.
“We have been able to finalise the GST rate structure. Zero tax rate will apply to 50% of the items in the CPI basket, said Jaitley on first day of the GST Council meet that spans two days.
In order to keep inflation in control, several essential items such as food that currently constitute half of the consumer inflation basket will be taxed at zero rate.
“Zero rating of necessities is surely a welcome news, though the actual benefit to consumer will depend on the items included in this category,” said Rajeev Dimri, Leader, Indirect Tax at consulting form BMR & Associates. Lower rate of 5% for items of mass consumption along with zero rated tax structure for essential commodities would make GST less regressive and pocket friendly for common man, he added.
As per Jaitley, about Rs 50,000 crore would be required in the first year to compensate for any loss of the revenue from rollout of GST. For this matter, a revenue pool will be created from the collections from the additional cess. For Consumers
Even as the lists are yet to be rolled out by the GST Council, there may be good news round the corner for consumers. “Tax costs might even go down for commodities to be taxed at 5 per cent provided the credits on procurements are fully allowed,” said Dimri.
However, the government would need to ensure that multiple rates proposed for goods and services do not inherit the legacy issues around classification anomalies, said Krishan Arora, Partner, Grant Thornton India.
There has been a slight modification to the GST slabs when compared to earlier discussions where they were fixed at 6%, 12%, 18% and 26%.
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