GST council fixes cap on cess for demerit goods and luxury items

The Dollar Business Bureau 

The GST council has approved a ceiling for cess that can be charged on demerit goods and other luxury items to compensate states for any loss in tax revenue in the first five years. 

The cap on cess for luxury cars and aerated drinks has been set at 15%, which will be charged over and above GST. The maximum limit is not indicative of the actual cess that will be imposed, as the government has left a margin for future contingencies. 

The cess percentage taxed on luxury goods will be such that the commodity's price stays relatively unchanged from what it was before the implementation of GST. For instance, for a luxury item which is taxed at 40% under the current indirect taxation system, there will be a tax of 28% GST and 12% cess to maintain pricing at the same level as before. 

While cess on pan masala has been limited to 135% ad valorem, that on tobacco is set at a mix of Rs 4,170 per 1,000 sticks or 290% ad valorem. The cess on coal is capped at Rs. 400 per ton. 

At the 12^th session of the GST council, draft legislations of the S-GST (state) and UT-GST (union territories) were also approved. In its previous meeting, the council had cleared C-GST and I-GST laws. 

Thursday's session also gave exporters based out of SEZs reason to cheer, as lawmakers accepted Commerce Ministry's proposal to bring supplies to SEZs under the zero tax brackets. 

The complete and final GST draft is to be presented in the parliament during the second half of the ongoing budget session, which will close on April 12, 2017. July 1, 2017 has been proposed as the likely deadline for the roll-out of GST. 

After the council's next meet on March 31, 2017, goods and services will be categorised in the four broad tax slabs (5%, 12%, 18% and 28%) under GST.