GST Council puts off rate decision to Nov 4

The Goods and Services Council on Wednesday failed to arrive at a consensus at the GST rate structure with Finance Minister Arun Jaitley saying that the compensation mechanism to states which is yet to be decided is linked to finalisation of rates.

A final decision on rate structure is now expected in the next meeting of the council on November 4 and 5. Jaitley said it is yet to be decided whether the compensation should come from higher taxes or a cess on luxury goods or through any other route.

 Cess is proposed to be imposed on goods such as luxury cars, tobacco, cigarettes and alcohol that are to be taxed at the highest rate of 26%. While industry rejected the idea of cess in toto, most of the states converged on the cess route for compensation to states that may incur losses after the new indirect tax regime comes into force from April 2017.

Industry also had reservations about the multiple rate structure under the new GST regime saying it will affect compliance and perhaps even bring scope for litigation under the GST regime. But, Jaitley said that the tax slabs are meant



to provide comfort to the tax payers as well as bring more revenues to the states.

 The rate structure proposed by the GST Council has four slabs. The lowest is 6% and the highest is 26%. In between, there are two standard rates of 12% and 18%.

 “There are chances of similar goods falling under different slabs giving rise to the scope of litigation,” said Sachin Menon, Partner, Indirect Taxes KPMG. He said lesser slabs and no cess could have been the best bet under GST.

 State finance ministers like Thomas Issac, his counterpart in Jammu and Kashmir Hasseb Drabu and in Tamil Nadu, K Pandiarajan said that there was almost a consensus on cess being one of the routes to fund compensation to states though it may not be the only choice. 

Industry also believed that cess was against the basic premise of original GST idea and that by throwing such surprises the Centre was undermining people’s trust on GST.

According to Nihal Kothari, Executive Director of Khaitan and Co, multiplicity of rates should be avoided as far as possible.