Finance Minister Arun Jaitley, who will chair the next round of meetings of the GST Council in the coming week, said on Wednesday that levying a cess to compensate losing states and meet the cost of funding, and the question of a multiple rate structure would be the two most important topics on the agenda.
An additional tax to bear the cost of funding instead of a cess could prove to be exorbitantly high and almost unbearable, Jaitley wrote in a post.
Assuming that the compensation is ₹50,000 crore for the first year, the total impact of funding the compensation through a tax would be abnormally high, he said.
Referring to the four-slab structure of 6%, 12%, 18% and 26% that is being considered, Jaitley said that while some have suggested that a multiple tax rate is disadvantageous to the GST regime, reality is that a layered tax rate is inevitable in India for several reasons.
The rates are likely to be finalised in the next round of meetings.
”Different items used by different segments of society have to be taxed differently. Otherwise the GST would be regressive. Air conditioners and hawai chappals cannot be taxed at the same rate,” Jaitley said.
GST is expected to be rolled out by April 1, 2017.
Jaitley said in his note that most commodities would be taxed at lower than present levels. “The biggest advantage of GST actually lies in the GST design itself which provides for seamless transfer of input tax credit across the value chain,” he wrote. “The net gains of a more efficient tax would be felt over a longer period of time once the implementation glitches are all resolved.”