4-level GST rate structure

•  GST council has finalized a 4-tier tax structure of 5, 12, 18 and 28%, with lower rates for essential items and the highest for luxury and de-merits goods.

Key decisions:

• The four bands of tax rates have been fixed at 5 percent, 12 percent, 18 percent and 28 percent.
• Another category of tax between 40 percent and 65 percent will be imposed on luxury goods like high-end cars, pan masala, aerated drinks and tobacco products.
• Cess, to be applicable on luxury cars, tobacco, aerated drinks etc, is not an additional levy, but an existing one and "there will not be an additional burden of even a rupee". A cess is not shared with the states.
• Food grains will be zero-rated to insulate people from inflationary pressures.
• Most white goods, like washing machines, air conditioners, refrigerators, shampoo, shaving stuff and soap, will be taxed at 28 percent (with riders). The current levy varies between nil tax to 30-31 percent. The rider has been set as there are several items which are used by the lower middle class.
• A decision has also been taken to levy a cess in order to raise funds to compensate states for the revenue losses they will incur.
• Demerit goods or sin goods such as luxury cars, pan masala, aerated drinks, and tobacco and tobacco products, will invite a tax of 28 percent plus the cess. The overall incidence with cess, thus, could vary between 40 per cent and 65 per cent.
• There has been no consensus yet on tax rate for gold

Analysis:

• The fixing of rates by the GST Council marks a crucial milestone towards the rollout of the single tax that will replace various state and central levies and create a seamless national market for goods and services.
• But there are concerns regarding this decision.Industry bodies and business leaders have expressed their concerns about the complexity of the final rate structure of the Goods and Services Tax.
• The main issues of concern seem to be the complexity brought on by the multiple rates and the uncertainty about the additional cess that will be levied on luxury goods and tobacco products.
• Another area of concern is the requirement for multiple registrations in each state for the supply of goods and services.
• While the goods will have a multiple rate structure, no clarity is provided on rates applicable to services.

By: Vishal