The Goods and Services Tax (GST) Council is likely to get the power to raise the rate up to 40 per cent for any item in future, without the need for parliamentary approval.
The proposed move has not gone down well with tax experts, who want the rates to be moderate even in the future.
The Council, chaired by Finance Minister Arun Jaitley, has proposed an enabling provision in the GST Bills for a peak rate of 20 per cent each for Central GST (CGST) and state GST (SGST), from 14 per cent in the current draft , taking the limit to 40 per cent from 28 per cent.
However, the current slabs will not be disturbed, at least for now. The four-slab GST structure will remain unaltered at five, 12, 18 and 28 per cent, and a cess for the time being, as agreed by the Council. The government is targeting July 1 as the GST rollout date.
The revised draft of the model GST laws, made public in November 2016, provides for a maximum rate of tax under the GST regime at 14 per cent central GST and an equal rate for state GST.
"There shall be levied a tax called the central/state goods and services tax (CGST/SGST) on all intra-state supplies of goods and/or services... at such rates as may be notified by the central/state government...but not exceeding 14 per cent on the recommendation of the Council and collected in such manner as may be prescribed," the draft law states.
The '14 per cent' will now be changed to 'not exceeding 20 per cent'. With this, the Council will get an enabling provision that it can exercise in the future.
The Council will meet here on Saturday and Sunday to clear the CGST, SGST and IGST laws. It is likely to take up the enabling provision as well.
"While it seems that it will not immediately impact the current slabs which have been envisaged, industry would be afraid that rates could increase once GST is implemented," said Pratik Jain, indirect tax leader at consultancy PwC India. "It is important for the government to realise that the benefits of GST will only accrue if rates are moderate and the tax base is enhanced. It might be prudent for the Council to reconsider this decision."
The Centre plans to introduce in Parliament the CGST Bill in the second part of the Budget session beginning March 9. After it is approved by the Council, states will introduce the SGST Bill in their respective legislative assemblies.
Central and state officials will soon begin the fitment exercise, to determine which goods and services should fall in which tax bracket.
They will also decide the cess on luxury and demerit items -- luxury cars, aerated drinks, tobacco, etc --- to compensate states for any loss of revenue from implementation of GST in the first five years.