On Thursday, India’s Finance Minister Arun Jaitley revealed that the GST council has unanimously decided on a four-tier GST rate structure of 5, 12, 18, 28 percent.
He added that GST Rates for what he termed as “aam aadmi products” will be set at 5 percent. Importantly a zero-tax rate will be applied to 50 percent of items falling under the Consumer Price Index basket, including food grains which are of importance to the common man.
As per the new GST slabs, most of the services will be set at the 18 percent rate, and most consumer goods of importance to the middle-class consumer will fall under the 5 percent and 12 percent bracket.
Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate of 28 percent.
Cess Collections to Compensate States for Revenue Losses
Jaitley revealed that the collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of the GST.
The cess, he said, would be lapsable after five years.
Jaitley added that about Rs 50,000 crore would be needed to compensate states for loss of revenue from rollout of GST, which will subsume a host of central and state taxes like excise duty, service tax and VAT, in the first year.
The structure analysts believe it has been agreed as a compromise formula to accommodate demand for states such as Kerala which have the highest tax rate of 40 percent. No rates on gold has been decided, however Jaitley revealed that a final decision on rates for specific products will be taken by a select committee.
(With PTI, CNNTV18 Inputs)
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)