25, October 2016
CEO's Note
GST hurdles

The third meeting of the GST Council ended last week without making much headway. After the first two meetings of the Council, things had appeared to be on track. Even the opening day of the third meeting looked promising, but differences soon started cropping up and the Council had to end its meeting abruptly on the second day, a day earlier than scheduled, without reaching a decision on the rates structure. This development is worrisome. The Centre has set an April 1, 2017 target for the launch of a nationwide GST, and now the target only seems to get tougher.

In the third meeting, the Finance Ministry has proposed a four-slab GST structure – 6% for essential goods, 12% for merit goods, 18% standard rate and 26% for demerit goods – and there is near-unanimity on this among the states. But the Centre also wants to impose a cess over and above the GST on ultra luxury and demerit goods in order to finance compensations to the states for losses due to shift to the GST regime – a proposal which, according to some states, amounts to using GST funds for compensation. They demand that the compensation should be paid out of the Consolidated Fund of India.

Many view that the central government, by proposing a multi-slab GST structure, has turned the whole concept of simplified tax regime upside down. Multiple slabs will lead to more complications and higher compliance and administrative costs. It is also pointed out by some experts that the proposed cess on ultra-luxury and sin goods does not go well with the original idea. GST is supposed to subsume cesses and hence the proposal is conflicting. Also, it is not acceptable to many that the Centre would have absolute powers in future to alter the cess rate without consultation with the states.

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