Multiple slabs, ranging from zero to 26 per cent, with a cess on ultra luxuries and demerit goods in the top-most slab, is the only rate structure for consideration in the GST (Goods & Services Tax) Council, which is scheduled to reconvene for the next round of deliberations on Thursday.
At least two officials in the Council told The Hindu that States that had objected to the imposition of cess on GST, leading the last Council meeting to end inconclusively, have not put up any alternative proposals for inclusion in the agenda for the two-day meeting.
The States’ main grouse was that the Centre’s proposal regarding the imposition of a cess on the GST for generating the revenues it will need to fund compensations to States for losses arising out of the transition to the new indirect tax regime “would amount to the use of GST revenues for compensating GST losses”.
“There is no other option on the table… cess is the only option…only last meeting’s proposal is on the table… the States will have to come around,” one of the officials said ahead of Thursday’s talks.
The official explained that the option of fixing the top-most slab at a level higher than the proposed 26 per cent as an alternative to the imposition of the cess is not feasible: “Not all of the revenues raised from the GST will come to the Centre as it will have to devolve 42 per cent of the collections to all states, including those not suffering losses, in accordance with the Finance Commission’s award… so the Centre will have to raise revenues in excess of the sum required to fund the compensations…this will overburden tax payers”. This would also hold for revenues raised from direct taxes such as income tax for compensating States.
On the other hand, the revenues mopped up from the cess, the official argued, would go into a separate escrow account from where direct disbursements will be made only to those states that will be eligible for compensations from the Centre in line with pre-determined formulae.
The official also ruled out a single-rate GST saying it would be “too regressive”. “A country like India cannot overnight raise the incidence of indirect taxes on goods and services consumed by the poor to 12 or 15 or 15.5 per cent and at the same time we can also not slash taxation rates falling on the rich to these levels from 40 per cent or more currently,” he said.
Both the officials said that though opposition was expected from states such as Kerala and West Bengal they remained hopeful on the possibility of reaching consensus on the proposed rates structure.
While Kerala Finance Minister Thomas Isaac last week published a newspaper column questioning the proposal, West Bengal Finance Minister Amit Mitra has reiterated in a letter to the Union Finance Minister Arun Jaitley the State’s concerns he had flagged in the last Council meeting over transparency after new data supplied to the state finance ministers revealed that at 3.05 million, the service taxpayer base is almost thrice of what was assumed so far.