Cabinet may discuss GST Council set-up

A fourth category for services is under consideration

QUICK PUSH: The Cabinet is likely to take up creation of GST Council at its next meeting on Monday. File photo

Following the President’s assent to constitutional amendment enabling the roll-out of the Goods & Services Tax (GST), India’s move to introduce the new indirect tax is all set to enter a crucial stage.

The Union Cabinet is likely to take up in its next meeting on Monday the constitution of the GST Council. This constitutional body, to be headed by the Union Finance Minister and comprising State Finance Ministers, will decide the rates at which the GST will be levied and collected and have to be paid across the country by consumers.

While the Opposition parties stand united in seeking that the standard GST rate, the rate at which the new tax will fall on a majority of the goods and services, be kept below the 18 per cent-mark, the States are keen to fix it at a higher level, closer to 20 per cent, to protect revenue collections.

The Council, likely to be in place before the end of September, will also have to finalise the number of slabs the GST will be pegged at for different categories of goods and services. Besides the standard rate, there could be a lower rate for wage goods consumed by the poor and another one for demerit or luxury goods, also called ‘sin goods.’

Fourth category

The Hindu has learnt that the Centre and States could also consider a fourth category—for services, currently taxed at about 15 per cent or lower in case of abatements. For example, Railways currently attract a service tax of 4.5 per cent (after abatement of 70 per cent).

The GST Council will have to decide if it would be politically feasible to tax the service at the standard GST rate, which could be 18 per cent or even higher.

Before the Council is set up, the Empowered Committee of State Finance Ministers is likely to meet to thrash out these and two other issues crucial to determining the GST rates: The list of goods, such as food grains, to be made exempt from the new tax and the threshold level below which sellers will be exempt from charging the GST, a tax on consumption.

States would like to see the GST rate closer to 20 per cent as they are concerned about revenue collections after the transition.

Calculation rate

Several states have expressed their worries over the calculations of the revenue neutral rate for the GST. A government committee under Chief Economic Advisor Arvind Subramanian had given the Centre last year recommended that the standard rate for the GST should be about 18 per cent. The calculations, they have found, underestimate the current indirect tax collections revenue by nearly Rs.7 lakh crore.