GST council sanctions last two draft bills, limits cess on demerit merchandise

In a subversive move, the Goods and Services tax (GST) council on Thursday approved the last two remaining draft bills for State Goods and Services tax (SGST) as well as Union Territory Goods and Services tax (UTGST) and restricted the cess on cigarettes (290%), aerated drinks (15%) and luxury automobiles (15%).

Sliding an inch closer to the July 1 rollout date, the council cleared the remaining two GST bills to implement the biggest tax reform of the country paving its way into the state and parliament legislative bodies. The council’s approval of these two bills is being deemed as a landmark development in the country’s exhaustive journey to implementing a unified tax system, according to experts.

The council also approved to limit cess on demerit (and luxury or sin) merchandise. The newly introduced cess rates are as follows:

• For automobiles and aerated drinks (colas), the cess has been limited at 15% meaning that the total tax on cars and sweetened beverages cannot go beyond 43% (28% cess + 15% cess).
• For cigarettes and other tobacco products, the cess can be either 290% or 4,170 INR per 1000 sticks or a combination of both.

Admittedly, these newly introduced cess rates are just qualifying provision, since the actual tax rates could be lower, and the decision rests solely on the GST council. 

Interestingly, the GST council has also decided to introduce a qualifying provision cess rates on all the automobiles and not just luxury automobiles. This infers that the council could decide to levy cess on non-luxury automobiles as well at a later date, which can be over and above the 28% tax rate.   

For goods produced in SEZ (special economic zones), the council has decided to levy tax rates that are similar for exports. Procurement of goods by SEZs would be zero-rated, whereas in the previous draft, SEZs were required to pay the tax first before claiming refund. 

“In the previous meetings, the GST council already cleared bills for state compensation (for revenue loss that would occur while transition to GST reform), Integrated GST (IGST) and central GST (CGST),” said Finance Minister Arun Jaitley, who heads the council.  

Four of the proposed bills excluding the state GST bill will be put forward for Union and Lok Sabha cabinet’s approval, whereas the state GST draft will need approval by state legislatures.  

Further, it is expected that the NDA government would table the proposed bills in the current budget session as revenue bills for smooth passage into the parliament house. 

The bills are expected to eradicate tax hurdles across states and include certain indirect taxes to be levied by the states and centre subsuming luxury tax, entry tax, entertainment tax, value added tax (VAT), service tax and excise duty. 

Next, the council has to validate nine sets of taxation rules along with wrapping up the tiring task of allotting various goods and services into different tax buckets. 

These rules along with the ones on input and valuation tax credit, invoice returns, refunds, payment, and registration will be decided in the next GST council meet on March 31. 

“We have set aside sufficient buffer time to decide the rates for different tax slabs to ensure that we meet the July 1 rollout deadline,” added Mr. Jaitley.