Oct 19, 2016 09:17 AM IST | Source: Moneycontrol.com

Four-tier GST rate mooted: Will cess play spoilsport?

The GST Council today met as part of a three-day meeting where it agreed upon a number of contentious issues, such as the compensation formula, and it is set to deliberate the remaining ones over the next two days.

The GST Council today met as part of a three-day meeting where it agreed upon a number of contentious issues, such as the compensation formula, and it is set to deliberate the remaining ones over the next two days.

State finance ministers told CNBC-TV18 that the central government had proposed a four-tier goods and services tax (GST) structure of about 6 percent, 12 percent, 18 percent and 26 percent. Additionally, sale of precious metals such as gold should be taxed at a special rate of 4 percent, it was suggested, while most essential items that form a part of the CPI basket have anyway been decided to be kept out of GST.

A panel led by Chief Economic Advisor Arvind Subramanian had earlier proposed a four-tier tax structure of 2-6 percent for precious metals, 12 percent for essential commodities, 16.9-18.9 percent standard rate and 40 percent for demerit goods.

While FMs will get into discussing minutae of the arrangement only from Wednesday, there appears to be some disconcert between various states on how to approach the subject of rates.

Kerala Finance Minister Thomas Isaac told CNBC-TV18 that his government would prefer a higher rate at the upper slab -- more than 30 percent, rather than 26 percent.

"This would enable us to bring down tax on necessities from 6 percent," he said.

Haryana FM Capt Abhinath made a major revelation when he said one of the suggestions made today included levying an additional cess on ultra luxury goods. Revenues from these could part of a "compensation fund", which could make good any higher-than-expected loss that states could suffer.

But he insisted that this suggestion was only one of the "options" that was discussed and that it would be used in cases of "rarity".

"We would like to ensure that states' current revenues are not compromised upon but we will also try to keep the GST as clean as possible," he said.

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