GST Bill to make peak tax rate 40%, slabs intact for now

The GST levy may go up to 40 per cent after the GST Council proposed raising the peak rate in the Bill to 20 per cent, from the current 14 per cent, to obviate the need for approaching Parliament for any change in rates in future.

The model Goods and Services Tax Bill will replace the clause which states the tax rate "not exceeding 14 per cent, with "not exceeding 20 per cent" when it comes up for debate in Parliament during the second phase of Budget session beginning next week.

The change in the peak rate will not alter the 4-slab rate structure of 5, 12, 18 and 28 per cent agreed upon last year for the moment, but is only a provision being built into the model law to take care of contingencies in future, two officials in the know said. The revised draft of model GST law, which was made public in November 2016, provides for a maximum rate of tax under the new regime at 14 per cent (14 per cent central GST and an equal state GST, taking the total to 28 per cent).

"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.

Officials said this will now be changed to say the rate will not exceed "20 per cent".

The GST Council, headed by Finance Minister Arun Jaitley and comprising representatives of all states, has agreed to keep the upper band of the rate in the law at 20 per cent.