The government will regularly review prices of 300 commodities post introduction of the Goods and Services Tax (GST) to ensure the new tax regime does not lead to inflation, a senior finance ministry official said on Friday. These items in the basket of Consumer Price Index (CPI) will be reviewed to study impact on inflation. The official said the tax rates on various goods and services will be decided in such a way that these are revenue neutral.
“We will do exact calculation to see that there is no inflation. We don’t want to make too many changes in rates of goods under new GST rate structure,” the official said. The GST Council last year decided on four tax slab rates, 5 per cent, 12 per cent, 18 per cent and 28 per cent, with another “zero tax rate” on several commodities including food grains that approximately constitute half of the consumer price index basket.
A meeting of the GST Council on Thursday cleared revised drafts of all the laws related to GST. The Council chaired by Union Finance Minister Arun Jaitley approved the drafts of the remaining two key legislative laws — State GST and Union Territories GST.
The official said the GST rates on hotels will be at 18 per cent. However, small hotels having a turnover of up to Rs 50 lakh will be taxed at 5 per cent, the official added.
The Centre will lose some revenue post GST due to abolition of cesses, the official said. Only four cesses will remain, and the government plans to bridge the gap on GST compensation to states via borrowing, the official said.
As the compensation to states need to be paid for only five years, these borrowings may be repaid from the collections of cess from the sixth year onwards. After sixth year, the Centre will not share the cess with the states.
The next GST Council will now meet on 31st March in order to frame the rules and would consider the most important issue of tax fitment of various goods and services.
Apart from the four slab rates that has been already decided, the Council on Thursday also decided to impose a cess on luxury and other goods with a cap of 15 percent. The maximum cess on pan masala has been capped at 135 per cent and for tobacco it is capped at 290 per cent or Rs 4,170 per 1,000 sticks, sources said. Some states wanted the government should not levy any cess on beedis, they said.
The environment cess has been capped at Rs 400 per tonne. The actual cess on these items will be decided later but the cap has been provided in the draft legislation, the sources said.