The Goods and Services Tax (GST) Council has approved a 15% ceiling on the cess to be levied on aerated drinks and luxury cars over and above the maximum proposed GST rate of 28%. The enabling laws for State and Union Territories were also approved at the Council’s meeting on Thursday, paving the way for the adoption of the new indirect tax regime.
While Bidis have been kept out of the GST net, separate cess ceilings have been approved for pan masala and tobacco products, including chewing tobacco and cigarettes — keeping adequate provision to raise the effective rate from their existing levels.
With the Council having already cleared three other GST laws — pertaining to central GST, integrated GST and the compensation to be paid to States for loss of revenue — this paves the way for the Centre and the States to pilot the new indirect tax system, proposed to be introduced from July 1, through Parliament and the Assemblies.
“Four of these laws have to be cleared by the Centre in Parliament, and will now be taken up by the Union Cabinet for their introduction and passage. We will try and do that expeditiously, and am sure that States would also try to expedite the state GST law by getting their respective cabinets to approve them,” Finance, Defence and Corporate Affairs Minister Arun Jaitley said after the meeting.
Apart from zero-rated goods, four tax rates of 5%, 12%, 18% and 28% have been proposed under the GST. The Council on Thursday approved the ceiling rates for the cess to be levied on top of the maximum GST rate of 28% on demerit or sin goods.
“The cess is to be levied on four or five commodities and the caps have been approved by the Council. For instance, the Council has approved a cap of 15% cess on luxury cars, but that is only for empowerment. These cars are currently taxed at 40%, so the cess may only be around 12%,” the minister said.
A similar 15% cess cap has been approved for aerated drinks as well, and Revenue Secretary Hasmukh Adhia said that any other item that the Council decides to bring into the remit of the cess subsequently would attract the same ceiling rate of 15%. The environment cess on coal, lignite and peat has been capped at the existing rate of Rs 400 per tonne.
For pan masala, which currently face an effective tax rate of about 135%, the ceiling on cess has been kept at 135% on an ad valorem basis (value of the product). For cigarettes, which currently face a specific duty of Rs 4,170 for every 1,000 sticks apart from VAT and other taxes, the ceiling has been kept at 4,170 for every 1,000 sticks and 290% on an ad valorem basis, with the option to levy a combination of both.
Pratik Jain, indirect tax leader at PwC India said that industry still awaits clarity as to whether some of the existing cesses such as Swachh Bharat cess will continue to operate.
By the next weekend, officials are also expected to finalise four pending draft regulations relating to issues such as valuation under the GST regime, which will then be taken up by the GST Council at its thirteenth meeting on March 31 in the capital, the minister said. Five sets of regulations relating to payments and other issues have already been approved by the Council.
“After these rules are approved, one major action remains – the fitment of various commodities into different tax slabs which we will strive to do in the Council meeting thereafter. Once that is done, we will be ready to implement GST,” the minister said, expressing hope that the fitment of GST rates to products will be taken up immediately after March 31 to enable enough buffer time to stick to the ‘tentative rollout date of July 1.’
“Clearance of the model GST law is a warning bell for those who have not yet commenced their preparations for introduction of GST. It will be too short a time for the industry for preparation if the states are not passing GST law latest by second half of April,” said Sachin Menon, national head (Indirect Tax), KPMG in India.
Mr Jain also said the rollout timeline still seems tough as the rules are still to be finalised and rates are to be determined over next couple of months. “Given all this, the Government may want to consider to implement GST from 1 September so as to give some more time to industry to prepare for this radical change,” he said.
