A decision on GST rate was on Wednesday put off for the next meeting of the GST Council scheduled for November 3 and 4, even as the Centre and states converged towards a consensus on compensating states for loss of revenue in the new regime.
The Council also agreed on levying a cess on luxury and sin goods in addition to the highest rate of tax which would be used to compensate states for any loss of revenue they may suffer from implementation of Goods and Service Tax (GST) in first five years beginning April 1, 2017.
An informal consensus was reached at the end of the two-day meeting of the GST Council on a four-slab tax structure of 6, 12, 18 and 26 per cent. The lower tariff will be for essential items and the highest bracket for luxury and sin goods like tobacco, cigarettes and alcohol, but a decision was put off to the next meeting.
Finance Minister Arun Jaitley said the GST Council, that includes representatives of all states, will meet again on November 3-4 to decide on the tax rates.
The third meeting of the Council, that began on Tuesday, was cut short by a day.
The GST Council "converged towards a consensus on source of funding for state compensation," Jaitley said.
"The question is whether the compensation will be funded from the rate structure itself, or some other sources, or some cess. Once this becomes clear, it will be possible to decide on the rate structure," he added.
On tax structure, he said, "We cannot under-tax or over-tax to keep rate slabs minimum."
The attempt, he said, was to fit zero rated items while levying a 6 per cent tax on items that are currently charged 3-9 per cent tax.
"The Council meeting today discussed the issue relating to different rates of tax structure. Rates also depend on the source of funds, on the basis of which compensation to losing states will be funded. Decision on a rate structure is possible once this is decided," Jaitley told reporters here after the meeting.
“The technical issues will be sorted out and the formal decision will be announced at the next meeting," Jaitley said, indicating there were two standard rates of 12 per cent and 18 per cent under discussion.
Once the GST rates are decided, the GST Council will meet again on November 9-10 to finalise the draft legislations, he said.
The Council had yesterday reached a consensus on the way states would be compensated for any loss of revenue from implementation of the new indirect tax regime.
"GST Council reaches consensus on definition of revenue to compensate states for revenue loss from GST implementation," Jaitley had said after the meeting.
Base year for calculating the revenue of a state would be 2015-16 and secular growth rate of 14 per cent would be taken for calculating the likely revenue of each state in the first five years of implementation of GST.
States getting lower revenue than this would be compensated by the Centre, the Council agreed.