GST Council divided over cess on luxury goods

20.10.2016
1. GST Council met earlier this week. Differences appeared over the levy of cess on luxury and environmentally sensitive goods and it prevented a decision on slabs for the proposed goods and services tax (GST).
2.  The Govt of India had proposed four slabs of 6%, 12%, 18% and 26%. While luxury and environmentally sensitive goods were to be in the top bracket, they were also supposed to face a cess, as an interim measure to deal with compensation. The cess on coal alone was expected to fetch Rs 26,000 crore annually , with the levy on other goods expected to rake in another Rs 24,000 crore. This money will flow into a dedicated fund and is proposed to be used for compensating states for any revenue loss on implementing GST.

 3.   However, states such as Kerala and Tamil Nadu opposed the plan to levy a cess on luxury goods and instead suggested that the top slab of 26% be increased. They backed a higher burden on tobacco, while insisting that the lowest slab of 6% be reduced to 5%. A cess on tobacco will fetch the government around Rs 16,000 crore, leaving a gap of Rs 8,000 crore.
4.   Some states questioned the rationale for a cess as it went against the overall principle of GST. They said that it was for the Govt of India to find resources to deal with compensation.
5.    Kerala FM Thomas Issac suggested that 26% rate be increased to do away with the need for cess. He said that currently, the tax on durables is 34-48%. Why give them a lower rate when the benefit will not be passed on to consumers? Instead, we should look to lower the burden in lower slabs.
6.    Finance ministry sources said the government did not want the tax burden to increase and the cess was an interim measure to deal with compensation. FM Arun Jaitley said the GST Council will meet again on November 3-4 to decide on the tax rates. It is likely to meet again on November 9-10.

 (Courtesy: Internet)

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