Govt Works on 4-Slab Rate for GST, Exemption for 50 percent Goods and Services

The tax exclusion to nearly half the goods and services, an official said, would be “optically and politically correct” for the NDA government as already 300 items in the Centre and nearly 80 items in the states have this exemption.

Ahead of the first meeting of the Goods and Services Tax (GST) Council on September 22-23, the Government is of the view that the basic tenet of the GST regime would be that it is “pro-poor” with 50 percent of essential goods and services exempted from any tax.

The tax exclusion to nearly half the goods and services, an official said, would be “optically and politically correct” for the NDA government as already 300 items in the Centre and nearly 80 items in the states have this exemption.

At a review meeting Wednesday that discussed the run-up to the rollout, the consensus seemed to be that the new tax regime should not put fresh inflationary pressure and backed Revenue Secretary Hasmukh Adhia’s proposal of a tax band of 8 to 26 percent with four rate slabs.

Sources said it was suggested that proposed slab rates of 8, 10, 18 and 26 percent be tweaked to 10, 12, 16 and 25 percent so that it did not affect revenue earnings and kept states on board as the final call has to be taken by the GST Council comprising state Finance Ministers and headed by Finance Minister Arun Jaitley.

Adhia was asked to rework the rates and their revenue implications for both Centre and the states and present the data at the next review meeting likely this week.

There is a widespread demand for keeping the GST rate low with the Congress calling for a cap of 18 percent. The Arvind Subramanian panel had recommended a three-rate structure with essential goods at 13 percent, demerit goods at 40 percent and the remainder at a standard rate of 17-18 percent. It had estimated the revenue-neutral rate at 15-15.5 percent.

Finance Secretary Ashok Lavasa made a presentation on the state of readiness for the creation of a national sales tax and the next steps, including the timetable, to get the supporting legislation approved.