The goods and services tax (GST) Council on Thursday approved two more laws — state GST (SGST) and Union Territory GST (UT-GST) — increasing chances of a roll-out of the new indirect tax regime from July 1. Earlier, the council had approved the CGST, IGST and the compensation law.
At its 13th meeting held in the Capital, the council also capped the cess on demerit goods or so-called sin tax at 15%, the proceeds of which will be used to compensate states that may face a reduction in revenue once GST is in force.
Finance minister Arun Jaitley said the cess would be restricted to five commodities. “We have kept a headroom of about 3% for imposing the cess on demerit goods,” the FM observed at a press conference. He clarified it would be levied in a manner such that the final tax incidence on such demerit items would not be lower than the existing tax rates. The cess is to be levied on tobacco, luxury cars, pan masala and aerated drinks.
Tax experts welcomed the cap on the cess of 15% and the fact that it would be limited to a few goods. However, several of them have drawn attention to the fact that the government needs to clarify on area-based exemptions given to companies in states such as Uttarakhand. They have pointed out that the exemptions cannot continue since they break the value chain.
While the four laws —CGST, IGST, UGST and compensation law, will require the Cabinet’s nod first and a parliamentary approval subsequently, the SGST law will have to be approved by the state Assemblies. The council in its next meeting on March 31 would approve four sets of rules under the GST laws. Jaitley said while five sets of rules — relating to registration, payment, refunds, invoices and returns — had already been approved, the council in its next meeting would discuss and approve the remaining four rules relating to composition, transition, input tax credit and valuation.
The council will need another major meeting to approve the fitment of different commodities in the four slabs — 5%,12%,18% and 28%, Jaitley said.Post the fitment exercise the GST will be ready for a rollout. The industry has often represented the delay in announcement of rates for commodities was proving to be hurdle in preparation for the new taxation regime.
The commerce ministry had asked for a zero rating of goods supplied to SEZs a proposal which has been approved by the council.
“It would also be critical for the government to immediately release the approved GST draft Bills along with relevant rules, rate schedules, etc for the industry to adequately assess the final impact of GST and align its business operations for a smooth and timely transition,” Krishan Arora of Grant Thornton India LLP said.