Centre circulates draft GST law with states

NEW DELHI: The GST Council in its meeting next week will discuss the draft GST law and compensation law with the Centre circulating these legislations with the states to seek their comments.

The Centre and the states have already decided on a four-tier GST rates-- 5 per cent, 12 per cent, 18 per cent and 28 per cent-- but is yet to decide on the issue of cross empowerment to avoid dual control.

The GST Council would meet on November 24-25 and finalise the draft bills, an official said.

The GST Council will have to clear Central GST (CGST), Integrated GST (IGST) and the compensation bills before they can be introduced in the Winter Session of Parliament, which began today.

The states will be given seven days to suggest changes or improvements to the draft laws for GST, after which these will be taken up by the council, the official said.

The government aims to roll out GST from April next year. The Goods and Services Tax (GST) will subsume excise, service tax, VAT and other local levies.

The GST Compensation Bill will provide a legal backing to the Centre's promise to compensate the states if their revenue growth rate falls below 14 per cent in the first five years of the GST roll out. The base year for calculating the revenue of a state has been decided as 2015-16.

The compensation law would have the taxes subsumed and the revenue forgone by each state on account of GST roll out. It will give details on how the Centre plans to raise funds for compensating the revenue loss.

The Centre and the states have converged to a four-tier GST tax structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent and keeping out essential items out of the purview of the new taxation regime.

The Centre will, however, impose a cess on luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks, over and above the the highest 28 per cent.

Under the structure, the clean energy cess and cess on luxury items and demerit goods would be utilised to create a Rs 50,000 crore fund every year which will be utilised to compensate the states for first five years of GST roll out.

The bill would also specify how much revenue is being raised from which item by way of levy of cess and also the way it is reimbursed to the states, thereby leaving no room for ambiguity.

Besides, it would also specify that at the end of five years if there is a surplus in the cess pool, in what proportion it should be decided between the Centre and the states.