India took a big step forward towards the rollout of the Goods and Services Tax on Thursday with the Centre and the states agreeing to a four-tier tax structure that exempts foodgrains and a number of other items.
Finance Minister Arun Jaitley said a single GST tax rate would be highly inflationary and added that the objective of the four-tier structure was to lessen the burden on the common citizen and at the same time continue the existing stiff levies on de-merit and luxury goods.
According to the consensus reached at the GST Council meeting, foodgrain and nearly half of all items that fall in the Consumer Price Index basket would attract zero tax.
The four-tier rate structure entails a 5% tax on items of mass consumption followed by two standard GST rates of 12% and 18% and the highest rate of 28%.
“A Committee of Secretaries would decide the fitment of items in the four-tier tax structure,” Jaitley said, adding that the exercise would begin soon after the conclusion of the GST Council meeting on Friday.
The GST Council would then incorporate the suggestions in the relevant Bills that are expected to be introduced during the winter session of Parliament later this month. The Centre wants to roll out the GST from April 1 next year.
“All the Congress finance ministers strongly supported the four-tier GST rate structure,” Jaitley said when asked about the Congress’ opposition to a multi-level rate structure.
A large number of white goods, which are also used by lower middle class, would come under the 18% category, which is a sharp dip from the 30-31% cumulative tax attracted by such goods at present.
The Centre hoped that the common man would have to pay marginally lower taxes after the rollout of the GST.
De-merit goods such as aerated drinks, paan masala, luxury cars and tobacco products would attract a GST rate of 28%, Jaitley said. However, the government will continue to levy taxes at the existing rates with the difference being collected as cess. “For example, tobacco products are taxed at 65%. Under the GST, 28% would be collected as tax and the balance 35% would be levied as cess,” Jaitley said. The revenue generated through collection of cess on the four de-merit goods and the clean energy cess would jointly constitute the compensation pool used to make good the loss of revenue of the states. The compensation pool will have a sunset clause of five years.
Goods such as shampoos, toothpaste, refrigerators, soaps, oil and shaving sticks may fall under the 18% tax bracket, which is a sharp dip from the current rates of up to 30%.