GST Council fails to reach consensus

The GST council on Wednesday failed to reach a decision on tax rate as no consensus could be reached on the issue of compensation for the states.

Most states are converging to the view of levying a cess in addition to the highest rate of tax on luxury and sin goods but “still more consensus needs to be built”, said a senior finance ministry official.

Centre had proposed on Tuesday to impose a cess over and above of 26 per cent tax on luxury and demerit goods under GST to raise funds to compensate states for loss of revenue due to roll of the new indirect tax.

However, some states including Kerala objected to imposition of additional cess saying it will set “a bad precedence.”

So the council has to first settle on how to raise funds for compensation. It is discussing whether the money for compensation should be raised through cess or high tax rates under GST. Once the issue is settled, only then will the council be able to decide on the tax rates.

Centre has to compensate states for any revenue loss due to roll out of GST for five years.

Centre hopes to settle GST rate structure in the next meeting of GST council scheduled for November 3 and 4.

After that, it hopes that GST Council will decide on draft legislations for GST in another meeting scheduled on November 9-10.

Mr Jaitley said the rate structure can be determined only after deciding whether compensation to states is to be funded out of the rate structure or some special cess or any other sources.

“Once this question is answered then rate structure can be determine independently” he said.

The GST council is also relooking at the issue of dual control as new issues have cropped up.

“Earlier it was decided that state will look at goods tax and Centre at service tax.

“But now it has been realised that there are some industries or people who are registered as both. Like works contract it is taxed both as service tax and goods tax. So vertical division of services and goods is not possible,” said finance ministry officials.

Centre is hoping to settle the issue of dual control too on November 3.