The decision-making body of the GST Council, which consists of Finance Minister Arun Jaitley and his counterpart from each state, has to decide the rate of tax, which must then be approved by parliament.
As per news sources, the council has ended without any agreement. It will meet again on November 3 and 4 in Delhi. The government is keen to present the details of the tax to parliament when it meets next month. If the tax rate is not cleared – or if it is delayed – the Finance Minister will find it tough to introduce the GST as planned in April.
The GST does away with levies charged when goods cross state lines and unifies India into a single market.
The centre has suggested four tax slabs with the lowest at 6 per cent and the highest at 26 per cent, which would apply to about a fourth of the 300 taxable items which will be covered by GST.
The slabs proposed are: 6, 12, 18 and 26 per cent. Food items should be exempt to keep inflation in control, the centre has suggested. FMCG and consumer durable products would be taxed at 26 per cent, against 31 per cent currently.
For luxury goods like fancy cars, cigarettes and soft drinks, an additional cess over the 26 per cent rate has been mooted which would be used to compensate states for any losses they incur when their individual levies end.
But some states object to the cess, alleging it would give the centre a bigger share of revenue. They want a higher tax rate without the cess carved out on luxury goods, claiming this will give them the larger portion of collections on luxury items.
The centre has agreed to compensate states for five years for the revenue they will lose when GST subsumes their levies. The extent of compensation remains a contentious issue.
Some states have also objected to the fact that 11 lakh businesses that currently pay service tax will continue to be assessed by the centre rather than them, which they say is unfair and eats into their authority. The centre says that over time, officials in states will be trained to take over.
“The underlying principle is that one assesse would be assessed only by one authority – that is the advantage of GST. So who will the centre assess and who will the state assess has to be decided,” said the Finance Minister.