The GST Council agreed on the crucial GST tax rates, which were broadly in line with the structures discussed at the October meeting. The April 1, 2017 deadline for its implementation seems achievable now.
The GST Council has agreed on GST tax slabs for various goods and services: (1) 0% for essential goods and services including food items, education, and healthcare, (2) 5% as threshold rate for goods such as textiles, (3) 12% as a lower rate for goods and services, (4) 18% as the standard GST rate, (5) 28% as higher rate for luxury items including consumer durables and some FMCGs, and (6) additional cess above 28% for ultra-luxury items and demerit goods including luxury cars, SUVs and tobacco products. The cess will provide additional resources to the central government to compensate states for losses incurred. This will be based on the compensation formula.
The multiple tax slabs (though not desirable) are perhaps necessary given the wide disparity in consumption levels in India. The structure aims to minimize the impact on CPI inflation and revenues of governments as the proposed GST rates are similar to current ‘overall’ rates for most goods. Hence, we see limited impact on overall government revenues.
The next steps would be to pass the CGST and IGST bills in parliament and the SGST bill in state assemblies in their winter sessions. Parliament’s winter session is scheduled to start on November 16. IT infrastructure will also have to be in place by December 2016 for testing and integration of GST infrastructure by March 2017 for an April 1, 2017 rollout.