GST Council proposes to hike peak tax slab to 40%

GST levy, which includes both central and state imposts, could go up to 40 per cent after the GST Council proposed raising the peak rate in the bill to 20 per cent, from the current 14 per cent.

While the 4-slab rate structure will remain as proposed, the council said a provision is being built into the bill to obviate the need for approaching Parliament for any change in rates in future.

The model Goods and Services Tax Bill, to be tabled in Parliament during the second phase of Budget session beginning next week, will have the clause which states the tax rate "not exceeding 14 per cent, with "not exceeding 20 per cent" when it comes up for debate.

For the preset, however, the GST Council does not intent to change the 4-slab rate structure of 5, 12, 18 and 28 per cent agreed upon last year, but is only a making provision in the model law to take care of contingencies in future, say reports.

GST is to be implemented from 1 July this year and, according to the finance ministry, all states have approved the draft proposals.

The revised draft of model GST law, which was made public in November 2016, provides for a maximum rate of tax under the new regime at 14 per cent (14 per cent central GST and 14 per cent state GST, taking the total to 28 per cent).

"There shall be levied a tax called the central/state goods and services tax (CGST/SGST) on all intra-state supplies of goods and/or services... At such rates as may be notified by the central/state government... But not exceeding 14 per cent on the recommendation of the Council and collected in such manner as may be prescribed," the draft law states.

Officials said this will now be changed to say the rate will not exceed "20 per cent".

The GST Council, headed by finance minister Arun Jaitley and comprising representatives of all states, has agreed to keep the upper band of the tax rate at 20 per cent.

"For the moment, we will not tinker with the rate structure of 5, 12, 18 and 28 percent. The GST Council has decided to keep the upper cap higher at 20 per cent so that in future in case of need to hike tax rate, there is no need to approach Parliament for a nod and the GST Council can raise it," reports quoted a finance ministry officials as saying.

This means the GST rate structure will remain flexible, allowing the government to raise the peak levy to 20 per cent each, taking the total to 40 per cent.

"The 4-tier rate structure that has been decided will hold for now. By keeping the upper cap at 20 per cent, we are just keeping an enabling provision which the Council can exercise at a later date after deliberation," the report quoted the officials as saying.

The centre plans to introduce the Central GST (CGST) Bill in Parliament in the forthcoming session beginning 9 March.

After it is ratified, the states will introduce the State GST (SGST) Bill in their respective legislative assemblies.

This will be followed by allocation of tax slabs to particular goods and services. The Council will also decide the goods and services that would attract a cess on top of the peak rate. This cess would then be used to create a corpus that can be used to compensate states for any loss of revenue from implementation of GST in the first five years.