GST Panel Puts Off Rate Decision to November, Sin Goods Cess Likely

New Delhi: The Centre and states on Wednesday failed to decide the tax rate under the new GST regime even though they "converged towards a consensus" on levying a cess in addition to the highest rate of tax on luxury and sin goods.

There were differences on the issue of dual control with states demanding control over 11 lakh service tax assessees, and Centre proposing to do away states having exclusive control over all dealers up to an annual revenue threshold of Rs 1.5 crore — an issue which was settled in the first meeting of the GST Council.

The proposed cess on luxury and sin goods like tobacco, cigarettes and alcohol would be used to compensate states for any loss of revenue they may suffer from implementation of Goods and Service Tax (GST) in first five years beginning April 1, 2017.

There was virtual consensus among states on imposing of the cess, which tax experts and industry has vehemently opposed, saying it defeats the very concept of one-nation, one-tax.

A four-slab tax structure of 6, 12, 18 and 26 per cent with lower tariff for essential items and the highest bracket for luxury and sin goods also found favour with them but a decision was put off to the next meeting on November 3-4.

Finance Minister Arun Jaitley said the GST Council, that includes representatives of all states, will meet again next month and decide on tax rates.

"The discussion that slab should be least is a good discussion. But if we lose tax revenue or levy very high tax in order to keep that slab low — that is not appropriate.

"So the effort will be to fit the taxpayer in the closest GST tax bracket which he is paying now," he said.

The GST Council meeting, which was originally scheduled for three days, ended in two days after marathon discussions.

The Council "converged towards a consensus on source of funding for state compensation," Jaitley said.

Revenue Secretary Hasmukh Adhia said the GST Council will decide the tax slab and then the officers committee will decide on which commodity will fit in where.

"We are very optimistic of finishing the discussion by November 22. We are making good progress. The Finance Minister could have taken a short cut in arriving at decision by voting out issues, but he is developing a consensus among states and Centre," he said.

Asked whether the relook into dual control would mean a review of the Rs 1.5 crore threshold limit which was already decided, Adhia said, "It is being looked at. The issue is being rediscussed. Whether that threshold should remain or not that will be decided."

Jaitley said the rate structure can be determined only after deciding whether compensation to states is to be funded out of the rate structure or some special cess or any other source.

The attempt, he said, was to fit zero rated items while levying a 6 per cent tax on items that are currently charged 3-9 per cent tax.

"We will finalise the tax structure at the next meeting," he said, indicating there were two standard rates of 12 per cent and 18 per cent under discussion.

Once the GST rates are decided, the GST Council will meet again on November 9-10 to finalise the draft legislations.

Explaining further, Adhia said if cess is not imposed and instead the tax of demerit goods are raised, as suggested by some states, then the number of tax slabs in GST would go up.

"On each one of these luxury items, there is a separate taxation burden. For example, for aerated water, cigarette, bidi, luxury car it may be different. If you have to put each in rate structure, one challenge is how many slabs can you have then.

"Can you have 26, 45, 75 per cent slabs? There are commodities where the effective rate of taxation currently is more than 100 per cent. Now the question is, is it feasible to have so many slabs of taxation in GST," Adhia reasoned.

On the issue of dual control and division of authority for assessment, Jaitley said the underlying principle is one assessee will be assessed by one authority. "So whom will the Centre assess and whom will the state assess and how that bifurcation will take place depends on how the dual authority is managed... The discussion on the two items is continuing, it is still inconclusive. In the fourth meeting of the GST Council these two items would be discussed and hopefully decision taken," Jaitley said.

Presentations have been made by officers of central and state governments on this issue and West Bengal Finance Minister Amit Mitra also presented some statistics, which need to be updated, he said.

The GST Council, in its first meeting on September 23, had decided that states will have exclusive control over all dealers up to a revenue threshold of Rs 1.5 crore in a year. A mechanism was to be worked out for traders above Rs 1.5 crore to ensure that a dealer is regulated either by the Central government or the state government but not both.

However, in the second Council meeting on September 30, some states disagreed with the decision taken after the first meeting that the Centre will assess 11 lakh service tax filers in the new dispensation.