Centre proposed four slab rates for GST
The Centre has proposed a four-slab rate structure for the Goods & Services Tax, ranging from zero to 26 per cent, at a meeting of the GST Council.
The structure proposes the GST at 0 per cent on a host of goods and services, including food, health and education services, and at 26 per cent on luxury items, such as fast-moving consumer goods and consumer durables.
On consumption of ultra-luxury items and demerit goods, such as big cars and tobacco products, it proposes imposition of cess over and above a 26 per cent GST rate. The GST is proposed to be levied at 6 per cent, 12 per cent or 18 per cent on the remaining goods and services.
This proposal singles out gold, for which it proposes a GST rate of 4 per cent.
The highest slab for the GST rates be fixed at 30 per cent so that common man items can either be exempt or levied with lower tax rates.
GST slab rates are less than the prevailing rates
The rate proposed on all items is by and large lower than the current rate. In the 26 per cent slab, for instance, currently most goods are being taxed at about 27 to 31 per cent.
Basis of determining slab rates
The principle for determining the rate on each item being proposed is to levy and collect the GST at the rate slab closest to the current tax incidence on it.
Inclusion of Cess
The proposal retains only the Clean Environment Cess from the multitude currently in place, with the GST including all the others, including the Swachh Bharat Cess, the Krishi Kalayan Cess and the Education Cess.
Consensus on modalities
The Council reached consensus on the modalities for determining the payments that will become due for compensating those States that would lose revenues on account of the shift to the GST. The likely revenue of each State in the first five years of implementation of GST will be calculated using secular growth rate of 14 per cent. The base year for calculating the revenue of a State would be 2015-16.
The Centre would compensate States whose revenue collections fall lower than these levels. The Centre proposes to pay compensations out of a fund to be created from the Cess on top of the GST on ultra-luxury items and demerit goods it included in the structure it presented to the Council.
GST slabs and Government revenues in future
It is argued that the proposal envisages 10 per cent of the current tax revenue collections base to fall in the 6 per cent GST slab and about 70 per cent in the 12 per cent and 18 per cent slabs. About 25 per cent of the current tax revenue base falls in the proposed 26 per cent slab, including items that will attract cess.