Luxury Cess to Merge into GST Soon

LUXURY CESS MAY BE MERGED INTO GST STRUCTURE

Why in the News?

  • Cess expiry: The Compensation Cess, extended till March 2026, may be integrated into GST rates post-expiry.
  • GST Council talks: The Finance Ministry supports integrating cess on luxury and sin goods like SUVs, tobacco, and aerated drinks.
  • Eight-year journey: Introduced in 2017 to compensate states, it helped offset GST transition revenue losses and later funded pandemic loans.

Luxury Cess to Merge into GST Soon

LIKELY CHANGES AND REVENUE IMPACT

  • New GST rates: Goods now under 28% GST + cess may shift to a higher composite GST rate.
  • No price impact: Consumers may see no change in cost, but tax sharing with states will improve.
  • Big collection: Cess expected to earn ₹1.67 trillion in FY25, all to end by March 2026.

12% SLAB LIKELY TO BE REMOVED

  • Tax simplification: The Centre proposes eliminating the 12% GST slab for ease of compliance.
  • Rate migration: Most items in this slab may move to the 5% category, benefiting consumers.
  • State consent needed: Since this affects state revenue, Council approval is essential.

GST STRUCTURE IN INDIA

●     Introduced: On July 1, 2017, GST replaced multiple indirect taxes with one unified system.

●     Current slabs: Four major slabs – 5%, 12%, 18%, 28%, with cess on specific items.

●     Revenue sharing: GST is split as CGST and SGST; Centre shares 41% of tax revenue with states.

●     Governance: The GST Council, chaired by the Union Finance Minister, sets rates collaboratively.

●     Finance Commission role: The 16th Finance Commission will revise the revenue-sharing formula starting FY27.