India has decided to peg the peak goods and services tax (GST) rate at 40% in the legislation instead of 28%, giving it the flexibility to raise rates without having to reach out to Parliament. This is only an enabling provision and the highest rate levied on goods will still be 28% (14% central GST and 14% state GST). The demerit and luxury goods will attract higher 28 rate plus cess.
This provision will also allow the government to remove the cess at some stage and instead have a higher GST rate only, which will make for a neater GST. The GST Council has decided to peg the peak tax rate at 40% (20% central GST and 20% state GST) in the model GST law to preclude the requirement of approaching Parliament or state assemblies for any change in future.
Mirroring the model GST law, the CGST, SGST and UTGST law will be firmed up by the Centre, states and Union Territories, respectively. The Centre plans to introduce in Parliament the Central GST Bill in the session beginning March 9.
They will also decide the goods and services that would attract a cess on top of the peak rate to create a corpus that can be used for compensating states for any loss of revenue.