The GST Council has set a cap of 15 per cent cess on the luxury cars and aerated drinks , the proceeds of which will go to the Compensation Pool to compensate states that may face a reduction in revenue once GST is in force.
There are five such goods which are also known as Sin goods or Demerit that would attract cess. On one such good -- pan masala, the cess has been capped at 135 per cent ad valorem whereas the coal cess has been capped at Rs 400 per tonne while tobacco and its products have been cess capped at 290% or Rs 4170 per thousand sticks or a combination of both.
Finance Minister Arun Jaitley said on the draft of the Compensation Law, the capping of the cess has been done.
We followed a principle that these are not the actual cess charges, only the caps. For example, in case of luxury cars, if 28% is the (GST peak rate) tax and the current tax is 40%, cess will be 12%, but for the purposes of empowerment, we kept the cap of 15% as a cess. Even though we may end up imposing only 12%. Capping is a ceiling so we kept a little headspace., but not an extra-ordinary only a marginal headspace. The cess going to the Compensation Fund. It is to be applied on those four or five commodities", he said
So a luxury car at present commands a total tax of 40 per cent, Under the GST regime, a GST of 28 per cent plus 12 per cent cess would be levied to keep the tax incidence at the same level.
No decision has been taken to levy cess on bidis as of now as the states have opposed it, Bureaucracy Today has learnt.
GST Council will meet again on March 31 to approve rules after which fitting goods and services in the four-slab tax structure of 5, 12, 18 and 28 per cent will be taken up.