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GST Council clears cap on cess on five demerit (17 – March – 2017)

The GST Council has worked out a cap on the cess to be imposed over the peak rate of 28% on sin and luxury goods such as cigarettes, luxury cars, aerated drinks, while clearing all the Bills related to the new indirect taxation system.

However, actual cess would be such that aggregate tax liability on these goods would be equal to the current tax rates and would be lower than a cap which would only give a headroom for the governments to increase it in the future.


Now, these Bills– Central GST (CGST), Union Territory GST (UTGST), Integrated GST (IGST) and Compensation Bills will come up in the Cabinet so that these are tabled in the current session of Parliament and respective state assemblies so that the goods and services tax (GST) could be introduced from July.
There will be five categories of goods on which a cess will be levied — pan masala; tobacco and its products; coal and related fuels; mineral waters, aerated waters and drinks; luxury cars, station wagons and racing cars and all other products.
There would be 135% cess on pan masala over the 28% GST. On tobacco, manufactured products, including tobacco products such as cigarettes, there will be a cess at the rate of Rs 4,170 per thousand sticks or 290% or a combination of both, an official said. However, a call is yet to be taken on whether imposing a cess on “Bidis” or not.
There will be a cess of Rs 400 per tonne on coal, lignite.
There will be 15% cess on mineral water, aerated drinks, luxury cars and any other category that will be notified. It should be noted that actual rates would be lower than these caps.
Union finance minister Arun Jaitley explained that the current rate on these goods would be maintained through peak GST rate and a cess. However, the cap would be higher to give a leeway to the governments later.
Luxury cars are currently taxed at 40%. As such a 12% cess would be imposed on them over the peak GST rate of 28%. However, the cap would be 15% so that a three% lever is there for the authorities.
The official explained that if it is found that compensation amount is higher than anticipated by the government, then GST rate on this item could be reduced to say 26% and cess is increased to 14% so that aggregate rate remains equal to the current rate of 40%.
At its 12th meeting, the Council cleared the SGST, union territory GST UTSGST and changes in the earlier approved CGST, IGST and Compensation Bills.
Now, the four of these Bills will go to the union Cabinet and then be tabled in the ongoing session of Parliament expeditiously, Jaitley said.
SGST Bills will be taken up by the respective state cabinets and assemblies.
There would be a buffer in terms of time for preparedness to GST roll out from July which was a tentative date.
The Council also cleared a union commerce department’s proposal to zero rate supply to special economic zones.
Now, the Council will work out rules on composition, valuation, tax collected at source and transitions. It has already approved rules on refunds, invoices, returns, payments and registration. In the next meeting on March 31, the Council will take up the rules on four categories and any changes to the already cleared rules on five issues.
A committee of officers would then work out fitment of rates of various items. The council has already approved four rates — 5%, 12%, 18% and 28 %.


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