GST rates fixed; 28% tax on luxury goods

BIG TAX REFORM Mass-use items to be taxed at 5%, zero tax on food grains

The all-powerful GST Council on Thursday agreed to give a little more relief to the poor and a little more grief to the rich in the goods and services tax (GST) slated to take effect on April 1 next year.

The council did not give in to the demands that the number of rates be reduced, since the ideal GST has just one rate. The number of rates remains four, though the lowest comes down from the earlier proposal of 6% to 5%, and the highest goes up from 26% to 28%. The two standard rates — which will apply to the bulk of the items — are 12% and 18%.

There will be no tax on essential items such as food – this is likely to beat down inflation, which has afflicted food items in particular. The lowest rate of 5% is on items of common use and the highest for luxury goods that now attract a total tax — value-added tax and excise — of 30 to 31%.

“I hope the indirect tax outgo for the common man will be marginally lower under the GST,” finance minister Arun Jaitley said in a media briefing after the first day of the GST Council’s sixth meeting in New Delhi.

“The zero-tax rate will apply to half of the items in the CPI (consumer price index) basket, including food grain used by the common man.” The council will meet again on Friday.

The outgo will be more for those who buy luxury cars, aerated drinks, and cigarettes and other tobacco products. Dubbed “demerit goods”, these will be taxed at 28% and attract a cess that may take the total to 40% or more, though there is no confirmation yet of how much the cess will be.