GST Bill to make peak tax rate 40%

GST Bill to make peak tax rate 40%

No change in 4-slab rate structure

GST Bill to make peak tax rate 40%
The Goods and Services Tax (GST) levy may go up to 40% after the GST Council proposed raising the peak rate in the Bill to 20%, from the current 14%, to obviate the need for approaching Parliament for any change in rates in future.

The model GST Bill will replace the clause which states the tax rate “not exceeding 14%, with not exceeding 20%” when it comes up for debate in Parliament during the second phase of Budget session beginning next week.

The change in the peak rate will not alter the 4-slab rate structure of 5%, 12%, 18% and 28% agreed upon last year for the moment, but is only a provision being built into the model law to take care of contingencies in future, two officials  said.

The revised draft of model GST law, which was made public in November 2016, provides for a maximum rate of tax under the new regime at 14% (14% central GST and an equal state GST, taking the total to 28%).

“There shall be levied a tax called the central/state goods and services tax (CGST/SGST) on all intra-state supplies of goods and/or services... at such rates as may be notified by the central/state government... but not exceeding 14% on the recommendation of the Council and collected in such manner as may be prescribed,” the draft law states.

Upper band

Officials said this will now be changed to say the rate will not exceed 20 %.

The GST Council, headed by Finance Minister Arun Jaitley and comprising representatives of all states, has agreed to keep the upper band of the rate in the law at 20%.

“For the moment, we will not tinker with the rate structure of 5%, 12%, 18% and 28%. The GST Council has decided to keep the upper cap higher at 20% so that in future in case of need to hike tax rate, there is no need to approach the Parliament for a nod and the GST Council can raise it,” the officials said.

This means the central GST and state GST can be up to 20% each, leaving the scope for a maximum levy at 40%.

“The 4-tier rate structure that has been decided will hold for now. By keeping the upper cap at 20%, we are just keeping an enabling provision which the Council can exercise at a later date after deliberation,” the officials added.