Conceding to stakeholders' demands, the Goods and Services Tax Council on Thursday arrived at a consensus of four bands of tax of between 5 per cent and 28 per cent, while agreeing to compensate states for losses on account of a shift to this new regime by way of cess.
Apart from the 5 per cent and 28 per cent rates, there will also be two standard rates of 12 per cent and 18 per cent. This apart, another category of tax will be imposed on luxury goods like high-end cars, pan masala, aerated drinks and tobacco products. They will be taxed at between 40 per cent and 65 per cent.
But foodgrains will be zero-rated to insulate people from inflationary pressures.
Giving these details at the conclusion of the first day of the council's two-day meeting, Union Finance Minister Arun Jaitley said members also arrived at a consensus on tax rate for white goods. "The draft called for 26 per cent, the consensus is for 28 per cent," he said.
The current levy varies between nil tax to 30-31 per cent.
Jaitley also explained why the decision was taken to compensate states with a cess. "As per our calculation, Rs 50,000 crore will be needed in the first year for compensation. If we have to raise this by way of tax, we will need Rs 1,72,000 crore," he said.
He was alluding to what will potentially be left after the central government shares the tax with states -- that is, Rs 50,000 crore. "The cess is not an additional levy, but an existing one. So it will not be an additional burden of even a rupee," he said.
"Luxuary cars, tobacco, aerated drinks will be levied with a cess, which along with clean energy cess on usage of coal, will be used to compensate states for loss of revenue."
The Finance Minister also said the compensation to states will have a sunset clause of five years, even as the council will take a call every year to see if the same needed to be continued.
He said the items that will evoke nil tax comprise some 50 items that go into the basket of Consumer Price Index, while hite goods and similar category of products -- like washing machines, air conditioners, refrigerators, shampoo, shaving stuff and soap -- will have a rider.
"The rider is there are several items which are used by the lower middle class. The objective is that the tax will be still below the present rate. Additional revenue will be used to compensate so that GST has a progressive character."
He said a panel of secretaries will meet to identify which product will fit into which category. "This exercise will start immediately after the current meeting."
There was no consensus yet on tax rate for gold.
Welcoming the GST Council's decision of a four-slab rate structure, India Inc however cautioned the government that the multi-tier tax system may make the new indirect tax regime highly complex. It also suggested that most of the consumer goods should fall in the 18 per cent tax slab.
"Model GST Law suggests multiple registrations in each state for supply of goods and services. This has the potential to result in huge burden of complexity," said Naushad Forbes, President, Confederation of Indian Industry (CII).
"Over time, the government should commit to converge to one or two rates. It is important that the bulk of goods and services should fall within the standard rate of 18 per cent. The higher rate of 28 per cent should apply only to 'demerit goods'," CII said.
Federation of Indian Chambers of Commerce and Industry (Ficci) President Harshavardhan Neotia said: "We compliment the GST Council in reaching a consensus and finalising the four tier rate structure under GST. The rate structure will achieve the twin objective of protecting the revenues of the central and the state governments."
BMR and Associates LLP Partner Mahesh Jaising meanwhile told IANS that "in terms of the new GST rate structure, what is worrying the industry is the ambiguity on what will be covered under the 28 per cent slab".
"FMCG and consumer electronics companies are hoping that 18 per cent will apply on their products. The highest slab should have been confined to 18 per cent," he said.