GST COUN­CIL AP­PROVES CGST, IGST LAWS

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Inch­ing to­wards July 1 roll­out of Goods and Ser­vices Tax (GST), the allpow­er­ful GST Coun­cil has ap­proved draft of key sup­port­ing leg­is­la­tions as also fixed a 5 per cent tax rate on small ho­tels and restau­rants. The Coun­cil ap­proved the fi­nal draft of Cen­tral GST (C-GST) and In­te­grated GST (I-GST) and will take up for ap­proval the State-GST and Union Ter­ri­tory-GST (UT-GST) laws at its next meet­ing. The C-GST, which will give pow­ers to Cen­tre to levy GST on goods and ser­vices af­ter union levies like excise and ser­vice tax are sub­sumed, and I-GST that is to be levied on in­ter-state sup­plies, will go to Par­lia­ment for ap­proval in the sec­ond half of the Budget ses­sion be­gin­ning March 9, Fi­nance Min­is­ter Arun Jait­ley said. The S-GST, which will al­low states to levy the tax af­ter VAT and other state levies are sub­sumed in the GST, will have to be passed by each of the state leg­isla­tive as­sem­blies. UT-GST will also go to Par­lia­ment for ap­proval. Jait­ley said the model GST Law will have a clause to en­able levy of up to 40 per cent tax (20 per cent by the Cen­tre and an equal amount by the states) but the ef­fec­tive tax rates will be kept at the pre­vi­ously ap­proved lev­els of 5, 12, 18 and 28 per cent. "The rates will be what has been de­cided by the Coun­cil. There won't be a higher rate of tax­a­tion. But the cap rate in the leg­is­la­tion is al­ways put at a higher level to leave a headspace, just as in the Cus­toms Act you have a difference be­tween the bound rate and ap­plied rate. So the ap­plied rate is go­ing to be what the coun­cil has de­cided," he said af­ter the Coun­cil's meet­ing on March 4. This is be­ing done to ob­vi­ate the need for go­ing to Par­lia­ment in case the levy is to be raised on cer­tain goods and ser­vices. This will also help in a sce­nario where the cess on de-merit goods be­ing pro­posed to com­pen­sate states for loss of rev­enue from GST, is to be merged with the tax rate it­self, he told re­porters af­ter the meet­ing. "As it looks like, it looks on track. Hope­fully the laws would be be­fore Par­lia­ment this ses­sion and sub­ject to the Par­lia­ment ap­prov­ing them, July 1this year now op­ti­misti­cally looks like the pos­si­ble date for GST im­ple­men­ta­tion," he said. The Coun­cil, headed by Jait­ley and com­pris­ing rep­re­sen­ta­tives of all states, de­cided to levy a 5 per cent GST (2.5 per cent by Cen­tre and 2.5 per cent by state) on small ho­tels, restau­rants and dhabas with an an­nual turnover of up to Rs 50 lakh. Rev­enue Sec­re­tary Has­mukh Ad­hia said there were de­mands that restau­rants should be in­cluded in the com­po­si­tion scheme, par­tic­u­larly those with less turnover. "So the Coun­cil de­cided that there would be a com­po­si­tion scheme for restau­rants up to a turnover of Rs 50 lakh and the rate for them is 5 per cent. So the re­main­ing restau­rants, they will come in the reg­u­lar ser­vice tax rate," Ad­hia said. Ad­hia said the first meet­ing of GST Coun­cil had de­cided that com­po­si­tion scheme in GST regime would be ap­pli­ca­ble on trad­ing and man­u­fac­tur­ing units with up to Rs 50 lakh turnover. The com­po­si­tion scheme pro­vides for a eas­ier method of cal­cu­lat­ing tax li­a­bil­ity and al­lows GST reg­is­tra­tion for deal­ers with turnover below the com­pound­ing cut-off. The scheme has been in­tro­duced to re­duce the ad­min­is­tra­tive cost associated with col­lec­tion of tax from small traders. Hence, busi­nesses below a turnover of Rs 50 lakh can pay taxes at a de­fined floor rate of 1 per cent, and man­u­fac­tur­ers can pay at 2 per cent, much lower than the GST rate. For ser­vices, it would be 5 per cent. Jait­ley said the Coun­cil will have its 12th meet­ing on March 16 in which SGST and UTGST bills will be cleared. "In a nut­shell, com­pen­sa­tion law was ap­proved in last meet­ing (and) to­day (GST Coun­cil) ap­proved the CGST and IGST law and in next meet­ing we will be ap­prov­ing the SGST and UTGST law which will then com­plete the leg­isla­tive ex­er­cise and en­able us to take these be­fore Par­lia­ment. "If they are ap­proved, then four laws -- Com­pen­sa­tion Law, CGST law, UTGST law and IGST law -- will get cleared by Cabi­net and taken to Par­lia­ment in the forth­com­ing ses­sion. SGST law will go to state leg­is­la­tures," he said. Af­ter this, the of­fi­cers will start work on putting dif­fer­ent goods and ser­vices in the four tax slabs of 5, 12, 18 and 28 per cent. "...the ex­er­cise is sub­stan­tially arith­meti­cal ex­cept in cer­tain prod­ucts where the Coun­cil will de­cide to grade it ac­cord­ingly," Jait­ley said, adding it would be dis­cussed at the 13th meet­ing of the Coun­cil. The GST Com­pen­sa­tion Law pro­vides for com­pen­sat­ing states that in­cur losses be­cause of im­ple­men­ta­tion of the Goods and Ser­vice Tax (GST) in first five years. The com­pen­sa­tion will be funded by im­pos­ing cess on de­merit and lux­ury goods. "The max­i­mum cess rate will be men­tioned in the com­pen­sa­tion law. But the ap­pli­ca­bil­ity of it would be what the Coun­cil has de­cided so far," Jait­ley said. GST, which will re­place a plethora of cen­tral and state taxes, is a con­sump­tion­based tax levied on sale, man­u­fac­ture and con­sump­tion on goods and ser­vices at a na­tional level. Un­der it, C-GST will be levied by the Cen­tre, S-GST by states and I-GST on in­ter-state sup­ply of goods and ser­vices. Var­i­ous in­di­rect taxes of cen­tral excise duty, cen­tral sales tax and ser­vice tax are to be merged with C-GST, while S-GST will sub­sume state sales tax, VAT, lux­ury tax and en­ter­tain­ment tax. Com­ment­ing on the de­vel­op­ment, Pratik Jain, In­di­rect Tax Leader, PwC In­dia, said: "an Ap­proval of CGST and IGST law by the GST coun­cil is a de­ci­sive step to­wards im­ple­men­ta­tion of GST from July 1 this year. While some le­gal draft­ing etc is still left, Govern­ment looks all set to get these passed in the sec­ond half of the budget ses­sion later this month. It seems that Coun­cil has agreed to all the leg­isla­tive sug­ges­tions of the States in­clud­ing those re­lat­ing to cross em­pow­er­ment un­der IGST laws. With this, I don't see any road­block in GST be­com­ing a reality from July 1. Now one would hope that GST Rules and Rates would also be fi­nal­ized quickly and put up in pub­lic do­main for dis­cus­sions."

Arun Jait­ley, Fi­nance Min­is­ter of In­dia

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