New Delhi: The proposed structure of levying cess on ultra-luxury and sin goods is a departure from the GST concept as envisaged initially and the Center would have absolute powers in future to alter the cess rate, which could go up to 2 percent, experts said.
The GST Council on Tuesday mooted a four-slab GST tax structure of 6, 12, 18 and 26 percent with lower rates for essential items and the highest for luxury goods that will also be levied with an additional cess.
"Cesses are being subsumed under GST and hence the levy of a new cess was a complete surprise. Proposal to have 5 rate structure is not aligned to the concept of simplified tax regime. Multiple slabs lead to complications on compliance and issues on classification," PwC Partner (Indirect Tax) Anita Rastogi said.
Last year, a panel headed by chief economic advisor Arvind Subramanian had suggested 17-18 percent as the standard rate for bulk of goods and services while recommending 12 percent for low rate goods and 40 percent for demerit ones like luxury car, aerated beverages, pan masala and tobacco. For precious metal, it recommended a range of 2-6 percent.
Experts said that the incidence of cess is likely to be such that luxury goods would attract tax somewhere between 26 to 40 percent.
"This cess that the Center is talking about is likely to be non-creditable. Because the Center wants to create a pool for compensation, the cess rate will likely come to between 1-2 percent," Nangia & Co Director Rajat Mohan said.
Deloitte Haskins & Sells LLP Senior Director (Indirect Tax) M S Mani said that as a concept cess does not go well with the original idea of Goods and Services Tax (GST).
"Possibly they want to avoid a fifth tax slab and hence they brought the concept of cess. Cess would be helpful in a way that the rate of cess can be very easily altered whenever the Center wants without consultation with state," Mani said.
As per the proposed GST rate structure, the Center plans to create a Rs 50,000 crore pool to be used to compensate the states for revenue loss arising out of implementation of GST.
The amount would be raised by imposing cess over and above the 26 percent rate on ultra luxury and demerit goods such as tobacco, cigarettes, aerated drinks and polluting items.
As the cess would vary, experts said, it would be difficult to quantify how much would be the incidence of price increase in these items.
"Most demerit goods are currently taxed between 27-40 percent. If the tax rate in GST is kept closer to that then the inflationary impact will be limited," Mani said.
The government plans to roll out GST from April 1, 2017. It will subsume excise, service tax and other local levies.
(With agency inputs)
