The most difficult decision for the implementation of the GST – consensus on GST rates were reached by the powerful GST Council according to Finance Minister Arun Jaitely. Decision is to adopt a four tier GST tax structure with two standard rates.
The four rates are 5, 12, 18 and 28 and the new tax will be rolled out by April 2017. Interestingly, there are two standard rates 12% and 18%. Details about the application of standard rates and the relevant goods and services are yet to be known.
Essential items including food will be taxed at a zero rate. The lowest rate of 5 per cent would be applied on goods of common use. Both these tax rate implies that inflation content of the tax will be low.
Primary assessment of the proposed tax structure shows that rate will come down under GST. But an important point is that service tax rate will go up by 3% to 18% from the current 15%. Service tax rate never touched 18% ever since it was introduced in 1993.
The peak rate of 28% will apply to luxury goods and still, the rate is lower than that demanded by many states including Kerala. The left ruled Kerala demanded 40% tax on luxury items. In the earlier format, tax rate was much higher on such items. Under the new GST, center will impose a cess on luxury items to compensate revenue loss of the states.