The GST Council’s four-tier tax structure will be more than revenue neutral, India’s Chief Economic Advisor Arvind Subramanian told reporters following the finance minister’s briefing on Thursday.
At its meeting headed by Finance Minister Arun Jaitley, the GST Council agreed on a 4-tier tax structure – 5, 12, 18 and 28 percent – for the Goods and Services Tax (GST), which the government proposes to roll out from 1 April 2017.
The higher revenue, which will accrue from the 28 percent tax rate, will be “used to reduce rates on many items that are of interest to lower and middle class people”, he said in an interview with BloombergQuint.
The Centre will compensate loss-making states under the GST regime through five cesses – a clean energy cess, which is already in place, and cesses on tobacco, pan masala, aerated beverages and luxury cars, Subramanian added. The cess will be calculated “as the difference between the tax incidence today and the 28 percent tax rate”.
Subramanian also insisted that all luxury goods will have to be taxed at 28 percent and be subject to the proposed cess structures. He said that the luxury goods categorisation is 'pretty much going to track what the rate on those goods is today'. He also maintained that no distinction will be made between branded and unbranded goods.
While explaining the idea behind categorising a luxury good, he said:
Goods deemed to be consumed more by certain people will be categorised as luxury goods. The parameters to define luxury goods is already reflected in tax brackets they fall in.
Regarding the need for a new bill to compensate states, he said that mechanism of compensation will be made clear in GST legislation. He noted:
There will be no ambiguity regarding compensation after the GST Bill.
According to him, there should not be much dwelling on the two standard rates proposed. He said:
The standard rate is the default GST rate. It will be the default rate for products not earmarked under any slabs. The two standard rates are more nomenclature and most of the products will be taxed under these slabs. We should not get too hung up on two rate terminology.
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