A council of India's federal and state governments on Thursday approved a four-tier tax structure for the proposed Goods and Services Tax (GST), finance minister Arun Jaitley told reporters.
The GST Council decided on slabs ranging from 5 to 28 per cent, which are steeper than the rates initially propsed by the government.
While there will be two standard tax rates - 12 per cent and 18 per cent - under the GST, half of the items in the consumer price index, mainly foodgrains, would not be taxed at all to safeguard the interests of the poor, Jaitley said. An additional cess will be levied on luxury cars, tobacco and aerated drinks.
The finance minister said, "Considering the inflation impact of having one standard rate, there’ll be 2 standard rates of 12 per cent and 18 per cent".
Industry expert and managing partner of PWC India, Ketan Dalal in an exclusive interview to WION said, "there could be inflationary pressure on the economy initially, but it would settle down once the structure sets in."
He added, that it is a progressive move to transform India into one single market and will further ensure ease of doing business in India, despite the criticism it has faced.
The council is yet to decide on the jurisdiction of the federal and state governments under the tax regime. The finance minister mentioned Rs 50,000 crore requirement that would compensate states for the loss of revenue on the back of the GST rollout.
The state assemblies must also to approve similar bills for the tax to enter force as planned. The GST council meeting aims to clear out the remaining contentious issues to enable the Parliament to approve the legislations in the upcoming winter session beginning November 16 and pave the way for the rollout of the new indirect tax regime from April 1 next year.