By TIOL News Service

NEW DELHI, NOV 03, 2016: TAKING the Nation by surprise, the GST Council at its fourth meeting arrived at a consensus to trade off one per cent reduction in the lowest slab for two per cent hike in the peak GST rate of 26%. The Union Finance Minister, Mr Arun Jaitley, said that the Council has approved the four-rate structure of 5, 12, 18 & 28. Along with this matrix, the Council has also approved the levy of CESS over and above the peak rate for luxury and demerit goods. When TIOL spoke to some of the Members they said that the rates for CESS would be different for tobacco, aerated drinks and luxury goods and they are to be decided later.

Insiders also said that it was a trade off between the States and the Centre to hike the peak GST rate in lieu of the Centre's proposal to levy CESS on demerit goods so that enogh revenue could be mopped up to compensate the States reporting revenue loss. Given the stubborness of the Centre it was almost foregone conclusion that the GST Council would finally approve the levy of CESS. As per some officials, the proposed CESS is going to be levied on the same taxable event i.e supply of goods and services. So, it is very clear that the Centre is not going to levy this CESS, drawing powers under ENTRY 97 of the Union List of the Seventh Schedule of the Constitution. However, the levy of CESS is not going to be Vatable, no credit to be allowed.

In today's meeting, the GST Council also took a decision to exempt all food grains from the levy of GST. Since as many as five States have been levying 5% VAT on some of the foodgrains, it was debated and discussed that since any tax on foodgrains would impact the poor and could be inflationary, it would be completely exempted. In the backdrop of this decision, the FM said that as much as 50% of goods in the CPI basket would be zero-rated. Secondly, since the dominant mindset was to reduce the incidence of taxation on essential items, the Council finally opted for one per cent reduction in the lowest slab and a hike in the peak rate.

So far as the GST rate for Services goes, contrary to the speculation that there would be two rates, the Council has approved 18% rate for all services. As regards the levy on Gold, it is learnt that since the lowest slab has been reduced to 5% the Council may decide not to create one more slab by going for 4% rate. However, a decision is yet to be taken.

Apart from finalising the GST rate matrix, the Council also discussed and debated a detailed presentation made by the GST Network. In its first presentation to the Council, the GSTN has elaborated a set of problems it faces and the difficulties which may delay the roll out of the pilot project. Although it talked about its commitment to meet the deadline but there may be some slippage. It is learnt that the members of a technical committee would be holding a fresh meeting tonite with the GSTN officials and work out the details of modalities for sharing of information with the States.

With the first issue being settled, the Council is going to take up the issue of cross-empowerment tomorrow and the officials are hopeful that the stalemate would be overcome by arriving at a consensus.