The Goods and Services Tax regime is likely to have two standard rates — one for goods and the other for services. A discussion to this effect is expected at the third meeting of the GST Council, which begins on Tuesday.
According to the proposal under consideration, the rate structure under GST would mirror that under the State value-added tax regime.
“The rates will be finalised after discussions with the States. A multiple rate structure will give flexibility to States as well as assuage their revenue concerns while keeping away inflationary pressures,” said a person close to the development.
The Centre hopes to roll out GST from April 1, 2017. Finance Minister Arun Jaitley, who chairs the GST Council, expects to finish all deliberations and finalise the modalities of the tax regime by November 22 so that the GST laws — Centre, State and integrated — can be passed in Parliament in the Winter Session, and by State Assemblies.
While the idea of varied tax rates has been floating around, consensus seems to be building around a standard rate of 16-18 per cent for services and about 20 per cent for goods. There could be one rate, of 4-6 per cent, for essential commodities, and a higher rate for demerit or ‘sin’ goods.
Last week, the Finance Minister had said the tax on environment-unfriendly products will be “distinct” from others.
Better option“Two standard rates seem to be a better option. If the rate for services is more than 18 per cent, it will have an adverse impact on consumers. However, a uniform standard rate is most desirable,” said Bimal Jain, Chairman, Indirect Tax Committee, PHDCCI.
Also, this would be in line with Chief Economic Advisor Arvind Subramanian’s report to the Finance Ministry on revenue-neutral rates for GST, which had pitched for a standard rate between 16.9 per cent and 18.9 per cent.
Sources indicated that the government may also continue with the current list of exempted commodities under GST, and give States the leeway to prune it. At present, 300 items are exempt from tax at the Central and another 80 at the State level.
According to Bimal Jain, there is a possibility of a uniform exemption list rather than the current State-specific arrangement. “The objective will be to ensure that exemptions continue for socially relevant items,” said the source.
Apart from the tax rates, the GST Council will take up two issues pending from its last two meetings. One, whether the Centre should retain administrative control over the 11 lakh service tax assessees or share it with the States.
And, two, finalise the formula for the Centre’s compensation to the States after choosing from three-four models for projecting an increase in revenue.