2016 GST Council Meeting - Govt Proposes 4 GST Slabs, Higher Tax On Luxury Goods Tuesday Oct 18,2016

Adding a new wrinkle to the government's plans to introduce the nationwide Goods and Services Tax or GST in April, a crucial meeting called on Tuesday Oct 18,2016 ended without a breakthrough on basics - like the rate of tax that will apply to different categories.

The Finance Ministry has proposed four tax slabs, with the highest at 26 per cent for about 20-25 per cent of taxable items. Other slabs included 12 per cent for food and fast-moving consumer goods (FMCG), and 6 per cent for precious metals like gold and for essential items.

"Worst fears confirmed. #GST to be regressive. Tax on luxuries to be reduced to 26%. #Tax on necessities to be raised to 12%," tweeted Kerala's Finance Minister Dr Thomas Issac on Tuesday.

The GST, described as India's biggest tax reform, replaces a jumble of state and central levies. Finance Minister Arun Jaitley is keen on finalising a deal with state governments at the three-day session that began today so that the proposed rate of tax can be submitted to parliament when it meets next month.

"Both states and the centre must have adequate revenue to discharge obligations with least burden on the tax payer," said Mr Jaitley on Tuesday.

Last month the GST Council, a decision-making body that comprises Mr Jaitley and state finance ministers, resolved key issues on how the sales tax would work and approved draft rules for its collection.

Some states have also objected to the fact that 11 lakh businesses that currently pay service tax will continue to be assessed by the centre, which has responded that over time, official in states will be trained to take over

With New GST, Here's How Different Items Could Be Taxed

1. The centre has suggested 4 tax slabs, with the lowest at 6 per cent and the highest at 26 per cent, which would apply to about a fourth of taxable items.
2. The slabs proposed are: 6, 12, 18 and 26 per cent. Food items should be exempt to keep inflation in control, the centre has suggested. FMCG and consumer durable products would be taxed at 26 per cent, against 31 per cent currently.
3. For luxury goods like fancy cars, cigarettes and soft drinks, an additional cess over the 26 per cent rate has been mooted, resulting in pushback from states. Kerala's Finance Minister Thomas Issac said the new cess violates the basic spirit of the GST - which is to have one uniform tax.
4. The goods and services that fall into this new cess category account for a fourth of all taxable items. FMCG and consumer durable products would attract 26 per cent GST rate, against the current incidence of around 31 per cent.
5. The centre has agreed to compensate states for five years, for the revenue they will lose when GST subsumes their levies. The extent of compensation remains a contentious issue and is being considered by the GST Council, whose three-day session ends tomorrow.
6. The main opposition Congress had earlier threatened to veto the GST if a rate higher than 18 per cent is proposed by the government. The Congress' support for the proposal is important in the Rajya Sabha or Upper House, where the government is in a minority.