The Goods and Services Tax (GST) Council headed by Finance Minister Arun Jaitley on Saturday cleared the crucial Central GST (CGST) and Integrated GST (IGST) bills, as the country moved a step closer towards implementing its biggest tax reform from July 1.
“The compensation law was approved in the last meeting. Today we have approved the CGST law and the IGST law. In the next meeting we will be approving the Union Territory GST (UTGST) and the State GST (SGST) laws, which will then complete the legislative exercise,” Jaitley said after the meeting. “It looks on track…1st July this year now optimistically looks like the possible date for the implementation of the GST.”
However, some variations related to language needs to be made, after which the draft would be sent to the Council’s legal committee for final approval, Jaitley said, adding that the decision (for clearing CGST and IGST) was unanimous and all the states supported it.
West Bengal Finance Minister Amit Mitra said while the IGST and CGST laws had broadly been cleared, the states had wanted 26 minor changes. He added that the legislation will provide for cross empowerment of state and central officers.
J&K Finance Minister Haseeb Drabu said the Centre had accepted the proposals and the Council would take a final view on the two laws in its next meeting.
Under GST, the states and the Centre will collect identical rates of taxes on goods and services. For instance, if 18 percent is the GST rate on a good, the states and the Centre will get 9 percent each called the CGST and SGST rates.
The Centre will also levy and collect the IGST on all inter-State supply of goods and services. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one state to another.
Two more laws – UTGST and SGST – need to be cleared by the Council, which would now meet on March 16 – while Parliament is in session – to finalise these laws, Jaitley said.
“The legal committee will finalise the SGST bill in the next three days and circulate it to the state assemblies for approval,” said Jaitley.
The Council would then send all the five draft laws – compensation law, IGST, CGST, SGST and UTGST – to the Cabinet and subsequently to the Parliament for final nod, which would then conclude legislative exercise related to GST.
The fitment committee, comprising members from Centre and the States will then work towards determining which commodity will fall in which rate slab, Jaitley said, adding that the “rates” would be discussed after the these five laws are cleared.
The council has agreed on a four-slab structure – 5, 12, 18 and 28 percent— along with a cess on luxury and `sin’ goods such as tobacco.
Jaitley said the model GST Law will have a clause to enable the tax levy of up to 40 percent tax (20 per cent by the Centre, as well by the states) but the effective tax rates will be kept at the previously approved four-slab structure.
“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,” Jaitley said.
This would give enough room to raise the final peak rate to 40 percent instead of the current 28 percent, without going to the Parliament for approval towards change in rates.
The move would help, when later, 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 said.
Revenue Secretary Hasmukh Adhia said there were demands that restaurants should be included in the composition scheme, especially those with a turnover of less than Rs 50 lakh per annum.
Adhia further said that the Council has decided to levy a 5 percent GST – 2.5 percent by Centre and 2.5 percent by state – on small hotels and restaurants.