ASSOCHAM suggests GST rate hike by 1-2%, instead of cess

The Dollar Business Bureau

Disagreeing against the imposition of cess under the GST system, ASSOCHAM has urged the Finance Minister Arun Jaitley to increase the proposed tax by 1-2% for compensating the states for their loss of revenue.

In a letter written to the Finance Minister last week, ASSOCHAM Secretary General D.S. Rawat said that the idea of imposing cess to compensate states does not appear to be feasible. The extra revenue needed for such compensation can be collected by hiking the tax rates by 1-2% in place of levying the cess.

The next meeting of GST Council, headed by Jaitley, is scheduled for November 3-4.

On the critical issue of tax rate structure, which GST Council has failed to decide in its earlier three meetings, the finance minister has said that the government is considering a four-slab structure of 6%, 12%, 18% and 26%, with lower tax rates for essential items and higher rates for luxury goods.

It has been suggested that commodities constituting almost 50% of the weightage in Consumer Price Index (CPI) basket, generally food items, would be exempted from the tax.

In addition, a cess is also expected to be imposed on sin or demerit goods and polluting products.

ASSOCHAM proposed that essential items of mass consumption such as grains, fruit and vegetables should not be put under tax, whereas processed food items such as dairy products, edible oil, rice and biscuits should attract 6% tax.

The industry body said that computers, mobile phones, fruit juices, pet foods should be levied at 12% and other commodities at 18%.

Sin or demerit products such as tobacco, pan masala and high-end luxury products such as luxury cars, should attract 26% tax, it added.

Last week, Jaitley had suggested that for compensating the states for revenue loss under the GST regime, a cess on luxury goods and tobacco is a possibility preferable beyond additional levy, which will be extremely high.