Video Summary

The Big Picture: GST: What are the hitches to be sorted out?

GST is a reform long delayed. But there may be good reason not to hurry it through now.
By IT's Video Summary Board
November 05, 2016

Points of Discussion

  • Introduction
  • What has been the primary cause of hurdle for common consensus on GST?
  • Suggestions
  • Four tax slabs and clarification
  • Conclusion




  • The GST Council, failed to come to an agreement after three rounds of meetings last week with some states opposing the Union finance ministry’s proposal to levy a cess on ultra-luxury goods, tobacco and pan masala and for clean energy.
  • The Centre had proposed a four slab rates structure for GST, ranging from 6% to 26%. 
  • The principles of fixing the rate would be; it should be inflation neutral, states and centre continue with their expenditure and tax payers are not burdened

What has been the primary cause of hurdle for common consensus on GST?

  • Every state has its own specific problem that is primarily responsible for not reaching out common consensus. For example, many states are arguing that ‘States will loose out’ but this has been clarified by the GST council as the states will be compensated for their losses for initial five years.
  • According to proposal, cess above the additional tax structure will apply on certain ultra-luxury items and other products which will lead to funds of estimated 50,000 crores. This fund will be exclusively used by the centre to compensate states. But states like Kerala is opposing to this fund and instead of charging from cess, they want it to be compensated from Consolidated fund of India.
  • Four slab rates structure violates the basic principle of GST ‘One rate one nation’ and is inconsistent but simultaneously single rate for so many distinct items under one rate umbrella is also not appropriate and is contentious issue.


  • GST Council should have representation of ministers from all states.
  • A round of discussion at the officers’ level might be fruitful among Revenue Secretary at the Centre and Finance Secretaries of states.
  • Time is required to train the staff and businesses to have software because everything is going to be invoice based.
  • It is going to be highly inflationary unless there is a mechanism put in place to ensure that the benefits of elimination of cascading effects of taxes actually pass on to the consumers.
  • The multi slab system might work but it might not give optimum results which were envisaged.

Four tax slabs and clarification

  • A four-tier structure for Goods and Services Tax (GST) comprising a lower rate of 6 per cent, two standard rates of 12 per cent and 18 per cent, and a higher rate of 26 per cent with an additional cess for luxury and demerit goods were proposed.
  • Argument: Items put under 6% slab were earlier subject to zero percent coverage of excise duty except with additional VAT (3% -9%) which will cause inflationary pressure to consumers.
  • Clarification: No need to scary for inflationary pressure, as items under 6 % slab in current were earlier subjected to other taxes like Octroy tax, toll tax, Mandy taxes etc. are now put under ceiling cap of maximum 6 percent.


  • Four rates – slab system and items under it is a contentious and complex issue that cannot be solve in one meeting.
  • GST is a reform long delayed. But there may be good reason not to hurry it through now.
  • One year time for roll out of GST tax system is less by seeing the complexity of the issue.
  • Proper mechanism for training and preparing various staff for this transformational change, IT infrastructure creation (SAP & ERP solutions), etc. has to be looked and planned.


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