States disagrees on GST rates as center tries to retain cess

The crucial second meeting of the GST Council ended a day before its schedule as states put resistance on center’s attempt to introduce cess on certain types of goods. An inevitable part of the GST reform was the elimination of cess. The cess revenue was solely gone to center and states sees its retention as an effort to reduce state’s revenue.

In the discussion, centre has proposed the introduction of a cess over and above the GST on ultra-luxury items such as big cars.

Earlier, centre has proposed a strange looking four tier tax rate – 4%, 12%, 18% and 26%. Of these, 12% and 18% will function as the standard rate. There is no specification on what will be the rate on services.

Interestingly gold is proposed to be taxed at 4%. Luxuries will be taxed at 26% and most probably Centre’s intention of bringing down the upper tax rate is clearly visible here.  

The state’s resistance was led by Kerala Finance Minister Thomas Isaac. Mr Isaac was unhappy about the standard rate of 18%. He argued that anything less than 20% will create revenue loss for states. This will be very visible once the compensation package goes. Mr Isaac said the States could not agree on the proposed four-slab structure. But he expressed that GST can be launched before the deadline date of April 1, 2017.

Some of the unsettled issues like compensation package for states slowed down the level of state zealous according to the sources. The next meeting of the Council is proposed for November 3, 4 and 9th