GST Council reached consensus on state compensation; base year to be 2015-16

The Goods and Services Tax (GST) Council on 18 October 2016 reached a consensus on the way the states would be compensated for any loss of revenue after implementation of the new indirect tax regime, GST from 1 April 2017.

During the meet, the GST Council also discussed the possible GST rates, including a four-slab structure of 6, 12, 18 and 26 with lower rates for essential items and highest band for luxury goods.

The three-day GST council meet was headed by Finance Minister Arun Jaitley and included representatives from all states. On the first day of meet, the council discussed five alternatives of GST rate structure but no decision was taken on the same. The discussions would continue on the second say of the meet.

Highlights of the consensus

• Base year for calculating the revenue of a state would be 2015-16

• Secular growth rate of 14 per cent would be taken for calculating the likely revenue of each state in the first five years of implementation of the GST.

• States getting lower revenue would be compensated by the Centre.

• They reached at a consensus on definition of revenue to compensate states for revenue loss due to GST implementation.

• The rate structure should be such which do not lead to further inflation and both the States and Centre have adequate funds to discharge their duties.

• The rate should be revenue-neutral so that there is no need to burden consumers with additional tax.

• To keep the inflation under check, food items along with other 50 percent items of common usage are proposed to be exempted from the tax.

• The lower rates would be levied on essential items and the highest for luxury and demerit goods.

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