Four-slab GST with luxury, sin at Peak

Major leap forward as states and Centre reach a consensus on rates and scope of the new regime; additional cess on luxury goods to create a revenue pool to compensate states 

Published: 04th November 2016 12:39 AM  |   Last Updated: 04th November 2016 09:48 AM   |  A+A-

By Express News Service

NEW DELHI: The GST tax structure has finally been decided with the Centre and states reaching an agreement on the subject. In a major breakthrough, the GST Council on Thursday announced a 4-tier tax structure at - 5 per cent, 12 per cent, 18 per cent and 28 per cent. It is yet unclear as to what items on your household budget could cost more and what could be cheaper.

However, it is likely that most of the essential goods like cooking oil, food grains and even toothpaste will attract zero tax under the new regime. Meanwhile, items like tobacco products, pan masala, aerated drinks and luxury cars would fall under the highest tax slab of 28 per cent including an additional cess for a period of five years.

Most mass consumption products used by the
aam admi would be taxed at only 5%. There
would be 0% tax on most food items
Arun Jaitley, Finance Minister

This, according to sources, will amount to a total of 40-65 per cent tax on these products. According to Finance Minister Arun Jaitley, the new tax structure would allow items that are currently taxed at rates close to  the announced rates to be adjusted accordingly. 

“Most mass consumption products used by the aam aadmi would be taxed at only 5 per cent. Around 50 per cent of all items that fall in the retail inflation basket - primarily food items - would be kept out of the GST. There will be zero tax on such items,” Jaitley said.

While the decision on rates for services like telecommunication, banking and insurance would be taken at a later stage, a few products are likely to be cheaper for the end consumer. There will be two standard rates - 12 per cent and 18 per cent - applicable on a majority of the goods. 

Currently, white goods such as refrigerators attract a tax between 30 and 31 per cent. This includes a 12.5 per cent excise duty and State Value Added Tax of 14.5 per cent. Once the GST rates are effective, a majority of these goods would attract a flat tax rate of 28 per cent, thus making them marginally cheaper. Cars too would come under this category. With current effective tax rates on cars ranging from 30 per cent to as high as 47 per cent, most cars are set to become a little cheaper. However, luxury cars would attract an additional cess, over and above the GST. Thursday’s decision would now be used by a committee of secretaries to decide the item-wise rates for thousands of goods and fix the slabs.

The consensus arrived at by the GST Council on the tax structure has cleared a major hurdle in the rollout of GST from April 1, 2017. The Council will meet again on Friday to decide on the dual control and to find consensus between the Centre and states on tax collection and division of powers. The Council will then meet again on November 9-10 to decide on the draft legislation.

The objective, according to the Finance Minister, is to ensure that the GST structure is not a burden for the common man. The cess levied on luxury goods will be used to create a dedicated corpus to compensate states for potential revenue losses after migrating to the GST structure. “The cess will come with a sunset clause for five years,” Jaitley said. “This will then be reviewed on a year-to-year basis and the Council would decide on the flexibility of this pool,” he added.

what you need to know
What does the zero tax rate mean?  
Zero rate for certain products consumed by a majority means that essential foodgrains etc will attract no tax. While the effective decrease in prices might be negligible for some, they might be high for others, depending on how much state tax they currently attract
Will my fridge, AC become costlier?  
Contrary to expectations, most white goods like ACs and refrigerators will attract a lower tax under the GST regime even if they fall under the highest slab of 28% as the current rate of tax on white goods is around 30-31%. This, however, will not include items classified as luxury goods within this segment 
Will services like mobile networks get cheaper? 
Currently, there is no clarity on which of the  services will fall under which slabs. If services like mobile phone connections are taxed at a  rate of 18 per cent, they will become costlier. However, services that fall under lower slabs will see rates drop significantly

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