A 4-tier GST tax structure has been finalised and will range from 5 to 28 per cent. The essential items will merit a lower tax while the taxes will be highest for luxury goods. Announcing the decisions arrived at the first day of the two-day GST Council meeting, Finance Minister Arun Jaitley said highest tax slab will be applicable to items which are currently taxed at 30-31 per cent (excise duty plus VAT). Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate.
With a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
The lowest rate of 5 per cent would be for common use items while there would be two standard rates of 12 and 18 per cent under the Goods and Services Tax (GST) regime targetted to be rolled out from April 1, 2017.
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 GST.
The finance minister further added funds to the tune of Rs 50,000 crore would be needed to compensate states for loss of revenue from roll out of GST, which is to subsume a host of central and state taxes like excise duty, service tax and Valued Added Tax, in the first year.