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No agreement on GST rates, states agree on cess for compensation

The Centre and states will meet again early next month to decide on the tricky issue of GST rates, but an agreement appeared possible on imposing a cess on ultra-luxury and demerit goods to compensate states for potential revenue loss.

The GST Council, headed by Finance Minister Arun Jaitley, will meet on November 3-4 to further discuss the rate structure with several rough edges yet to be ironed out in the four-tier system that the Centre had proposed on Tuesday.

The proposal to impose a cess had emerged as a major disagreement on Tuesday.

“I would say that we have converged towards a consensus on compensating states. A formal announcement after working out details will be made in next meeting," said Jaitley.

The third day of the meeting scheduled for Thursday has now been called off.

The council will again meet on November 3-4 and follow it up with another meeting on November 9-10 to decide on rates the draft GST legislations.

The Centre had proposed a four-slab rate structure – 6, 12, 18 and 26 percent—along with a 4 percent levy on gold.

The Centre has proposed two standard rates of 12 percent and 18 percent extending to a majority of the taxable goods.

The Centre has also proposed an additional cess for ultra-luxury and `sin’ goods such as tobacco.

The Centre has proposed the cess on luxury goods to create a dedicated corpus to compensate states for potential revenue losses after migrating to GST.

The Centre estimates total compensation to states for losses arising from a transition to GST to be around Rs 50,000 crore in the first year. This will be met through a fund— Rs 26,000 crore will come from the corpus generated by the levy of the clean environment cess on coal and Rs 24,000 crore collected from the cesses to be levied on demerit goods such as tobacco, luxury cars, pan masala and aerated drinks.

All other existing cesses such as the Swach Bharat cess will be subsumed under GST.

Around 50 percent of the items in the retail inflation basket will be exempted from GST.

A lower tax slab of 6 percent is proposed for those essential commodities on which no excise duty is levied at present by the centre but a 5 percent value-added tax is levied by the states.

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