The GST council on Tuesday began its three-day meeting and the first day itself saw important progress being made towards fixing the GST rate and the compensation formula.

 

The finance ministry has proposed a four-rate structure for GST, with two standard rates of 12% and 18%. Food items and other necessities would be taxed at 6% while luxury products would be taxed at 26%.

 

Additionally, a cess will be levied on ultra luxury items, tobacco products and environmentally harmful products. This extra levy will amount to about Rs 50,000 crore that will be used for compensating States.

 

“The objective is that the rate structure should not lead to any further inflation. The Centre and States should have adequate revenue and it should also put the least possible burden on the taxpayer,” said finance minister, Arun Jaitley, at the end of the first day’s meeting, attended by all state finance ministers.

 

But rift continues to surface between states, with states such as Kerala opposing the structure and rates proposed by the Centre.

The GST council reached a consensus that compensation to States for any revenue loss would be limited to the taxes subsumed under GST.

Jaitley, further said that a 14% growth rate in revenue is projected under GST.