GST Council caps luxury cess at 15%, `sin’ goods to be charged higher

17 Mar 2017


The Goods and Services Tax (GST) Council at its meeting on Thursday decided to fix the cess on luxury cars and aerated drinks at 15 per cent over the peak rate of 28 per cent.

The ceiling for the cess on ''sin'' goods like would be much higher. Sin goods such as pan masala will have a maximum cess of 135 per cent ad valorem.

Tobacco and manufactured substitutes, including tobacco products, would attract the cess at Rs4,170 per 1,000 sticks or 290 per cent ad valorem or as a combination of the two.

A call is yet to be taken on whether or not a cess would be imposed on bidis.

The cess on coal and lignite (environment cess) would have an upper limit of Rs400 per tonne, officials said.

However, the actual cess would be much lower - equal to the current indirect taxes on these goods. The cap would give headroom to authorities to increase the cess in the future.

At present, luxury cars were taxed at 40 per cent. With the roll-out of GST, luxury cars would be taxes at 28 per cent, with an additional cess of 12 per cent, which makes the new impost revenue neutral, finance minister Arun Jaitley said after the meeting of the Council in New Delhi on Thursday.

The Council gave a cushion of 25 per cent in the case of paan masala, the official said. In the case of cigarettes, there was inbuilt headroom of 100 per cent, as either or both ceilings could be imposed.

Currently, cigatettes attract an ad valorem (on estimated value of goods being taxed) and a specific tax. While the value-added tax (VAT) is ad valorem, excise is a mix of ad valorem and specific. ''We will most likely use a combination of both. For instance, 50 per cent ad valorem and 50 per cent specific, so that there are no leakages,'' the official said.

The environment cess had no cushion, as the industry could not  bear more than that, he added.

The cess would be used to compensate states for any loss in revenue because of the GST. The cap on cess on any other items notified later would be used only if more compensation is needed; so, in a way, this was also a leeway.

Finance ministry officials said if the compensation amount was found to be higher than anticipated by the government, then the GST rate on an item could be reduced to, say, 26 per cent and cess increased to 14 per cent, so that the aggregate rate remained equal to the current rate (40 per cent).

Jaitley said four of the bills - State GST (SGST), Union Territory GST, and changes to the central GST, integrated GST and compensation legislation - cleared on Thursday would be taken to the cabinet expeditiously. Then, these would be presented in Parliament.

SGST Bill would be taken up by the respective state cabinets and assemblies so that the GST could be rolled out from July. Jaitley said there would be a time buffer to prepare for the GST roll-out, and July was a tentative date.

The Council also cleared a Union commerce department proposal for the nil rate to be applied for goods and services going to special economic zones.

The officers' committee will send the final draft of the four balanced regulations and the correction in the earlier regulations for review. The GST Council is expected to meet again on 31 March to consider and approve the changes.

Thereafter the Council will look into the planning and implementation of "fitment of various commodities into the tax slab," Jaitley said.

"The GST Council will meet to approve the slabs and then will be ready for GST implementation," he added.

Jaitley said the final issue will be taken up as soon as the 31 March meeting is over as there is enough time for the roll-out, which is set for I July.

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