GST Council Meet on November 03 & 04: Rate structure undecided

Talks stuck on compensation again

Are you aware of the GST Council Meet and its latest news? Goods and Services Tax has been a piece of legislation that got stuck because of rounds of meetings held over the years to get to an understanding of the way states should be compensated. Also, the funds that each state should receive also had to be decided upon. Goods & Services Tax Bill was finally passed in the Rajya Sabha in the beginning of September. Before that, the NDA Government had to negotiate with the state Governments through meetings between the finance ministry officials and the state finance ministers. Pranab Mukherjee provided the consent for the bill to become an act. The constitutional amendment requires the bill to be ratified by assemblies. This was done in 17 Indian states.

GST: Rate structure undecided; proposed cess unacceptable to states

As Goods & Services Act will be implemented from April 2016, the details need to be decided upon by the state and Central Governments. GST Council has been constituted. State Governments are not in favour of a cess on demerit goods. These are the goods perceived as harmful and include tobacco products and aerated beverages. The GST structure has not yet been decided upon because the negotiations in the last meeting did not yield results. A cess has also been proposed for luxury goods such as cars. The implementation of Goods & Services Tax will cause a loss in revenue as indirect tax collections will decrease as rates for certain products will come down to 26% from the current levels.

Key highlights:

• The number of products that the Goods & Services Tax would apply to is 300.
• The 4 applicable rates are 6, 12, 18 and 26 percent.
• The highest GST slab would apply to 75 items only.
• Goods & Services Tax would enable a common tax structure for goods’ movement between states.
• The indirect tax levied on FMCG products is 31%. Under the GST structure, it would not go beyond 26 percent.
• Compensation for states is required because the above-stated scenario would lead to a decrease in tax collections for the state.
• Fundraising options are available to the Centre but for it to not be burdensome, a framework must be put in place to enable the funds to come from within the GST system.
• A proposed cess, to be levied on demerit & luxury goods, would provide the funds that would fill the gap between the earlier collections and the ones in the fiscal year during which the GST is levied.
• The tax structure as proposed by the Centre has not yet been accepted by states.
• GST council meets have now been scheduled for November 03 and 04, 2016.
• Services would continue to be taxed by the Central Government.

Goods & Services Tax and GAAR (General Anti-Avoidance Rule), along with bankruptcy laws, were listed in the two houses of Parliament for discussion during the UPA regime but the same party did not support these legislations when NDA tabled them. The bone of contention for UPA related to an ombudsman or an institution meant for handling disputes that arise during GST collection, the GST rate and a cap on the GST rate.

Indian direct and indirect tax collections show the tax structure for transfer of goods between states to be an intricate web wherein the Centre and the state both collect the tax, each for certain categories. GST is finally being implemented with a delay of one year. Arun Jaitley trying to convince UPA to get on board to get the bills passed made little difference as Congress raised corruption issues in the parliament and refused to support the Government on bills that were tabled by the same party. The tax structure is expected to be decided in the next GST Council meet; else, the April 2016 implementation of GST is unlikely.