Centre circulates draft GST law with states

The GST Council in its meeting next week will discuss the draft GST law and compensation law with the Centre circulating these legislations with the states to seek their comments.
The Centre and the states have already decided on a four-tier GST rates-- 5 per cent, 12 per cent, 18 per cent and 28 per cent-- but is yet to decide on the issue of cross empowerment to avoid dual control.
The GST Council would meet on November 24-25 and finalise the draft bills, an official said.
The GST Council will have to clear Central GST (CGST), Integrated GST (IGST) and the compensation bills before they can be introduced in the Winter Session of Parliament, which began today.

The states will be given seven days to suggest changes or improvements to the draft laws for GST, after which these will be taken up by the council, the official said.
The government aims to roll out GST from April next year. The Goods and Services Tax (GST) will subsume excise, service tax, VAT and other local levies.

The GST Compensation Bill will provide a legal backing to the Centre's promise to compensate the states if their revenue growth rate falls below 14 per cent in the first five years of the GST roll out. The base year for calculating the revenue of a state has been decided as 2015-16.

The compensation law would have the taxes subsumed and the revenue forgone by each state on account of GST roll out. It will give details on how the Centre plans to raise funds for compensating the revenue loss.
The Centre and the states have converged to a four-tier GST tax structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent and keeping out essential items out of the purview of the new taxation regime.
The Centre will, however, impose a cess on luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks, over and above the the highest 28 per cent.

Under the structure, the clean energy cess and cess on luxury items and demerit goods would be utilised to create a Rs 50,000 crore fund every year which will be utilised to compensate the states for first five years of GST roll out.
The bill would also specify how much revenue is being raised from which item by way of levy of cess and also the way it is reimbursed to the states, thereby leaving no room for ambiguity.
Apart from tobacco, aerated drinks, luxury cars and
environment cess, the GST Council has kept the option open for levy of 15 per cent cess on "all other supplies".

"The cess would be levied for five years and can be continued longer. The Council has kept the option open for levying cess on any residual item as and when decided by the Centre and states," the official said.
A cess of up to 15 per cent would be levied on those motor vehicles other than those used for transport of 10 or more persons, including the driver. But the exact definition of luxury cars would be decided by the Council at a later date.
The cess cap of 15 per cent has been mentioned in the compensation law and the effective tax rate that would be arrived at in the GST regime would not be higher than the present incidence on these goods as it might stoke inflation, the official added.

"For the purposes of empowerment, we have kept the cap of 15 per cent for cess, even though we may end up imposing only 12 per cent. The cap is ceiling, so we have kept a little headspace... Not an extraordinary headspace, but only a marginal headspace," Jaitley said.
He said the four laws -- CGST, IGST, UTGST and Compensation law -- as approved by the Council will be taken to the Cabinet and after its approval these would be introduced in the Lok Sabha.
"We will try and do that expeditiously," he said.
SGST laws will be taken up by the state cabinets and the respective state assemblies for passage.

The GST Council has already approved five sets of rules and regulations relating to registration, payments, refund, invoice and returns, Jaitley said, adding there are four others -- composition, valuation, input tax credit and transitions -- which now require a formal approval.
He said the five sets of already approved regulations might require "marginal corrections" in view of the legislations which have been finalised by the Council. The officers committee will circulate the set of nine regulations to the states by the next weekend.
The GST Council will consider and approve those regulations in the next meeting on March 31.