GST Council to meet Today, Tax rate in Limelight

The much awaited

GST has entered
the Central phase
today. The threeday meeting of the
GST Council will
take a decision on
the tax bands and
level out issues
like compensation
formula for the
new indirect tax
regime.
The
government is keen to utilize the meet to make a pact with states so it can
push the bill in the winter session of parliament that is to start at November
16. The Council is chaired by Finance Minister Arun Jaitley, with state finance
ministers or other representatives as members.

The Tax Rate Talk:

The tax rate is a vital point that will have a relevance to the common man. The
rate bands for essential and luxury goods are likely to be worked out. The
Centre will probably propose a four-tier tax structure under the GST, with a
peak slab of 26 percent. Approximately 20-25 percent of all taxable goods,
along with those consumed by the middle class, could come under the peak
rate. The thought is to arrive at a common ground with the states that are
anxious over revenue loss.
The discussion paper that will be presented at todays meeting is believed to
have proposed a standard rate of 18 percent.

Currently, there is a four tax slab with the highest at 26 percent, lower than
the 40% rate that is proposed for very limited demerit items. A lower rate of
26 percent can be implemented on more items.
The states are asking for a standard rate of 22 percent, whereas the Centre
has pressed for one of 18 per cent. The lowering of the top slab by including
more items may act as a middle-ground for the Centre and the states.

The GST panel, headed by Subramanian, had proposed a sin tax of 40

percent on limited demerit items like aerated drinks, luxury cars, pan masala,
tobacco and tobacco products. This brought out the protest from the aerated
drinks sector with Coca-Cola arguing that the 40 percent tax would leave the
company with no alternative but to shut down certain factories.
At present, aerated drinks with added sugar pulls a central excise duty of 18

percent and a state value added tax of 12.5 percent, making the total indirect
tax 30.5 percent. The Subramanian panel advocated a low rate of 12 percent
for certain items, a standard rate of 17-18 percent for a majority of items and
for the precious metal, it recommended a range of 2-6 percent.
The 26-per cent rate might be imposed on big cars, besides other premium or
luxury items and there is a possibility of another slab over 26 per cent
for them.

Other Agendas:
Compensation Formula: Like Tax rate, this one is again going to be a
tough nut to crack. At the first GST Council meet, 3-4 alternatives were
discussed but a verdict could not be reached. According to the
proposals, a state can be compensated if the revenue under GST falls
short of the standard tax earnings in the best three years out of the past
five years. Secondly, of the five years, two outliers are omitted and an
average is taken. If the revenue under GST is lesser than this, then states
get compensated. Third, a base year can be fixed which would be 201516 and a particular growth rate will be decided for all states. If the
income falls short of that, then the state gets compensated. Another
proposition was on a fixed rate of revenue growth and give
compensation. The Bill attempts to provide full compensation to states
for first five years of rollout of the GST regime. Previously, the 100
percent compensation to states was limited to only first three years. On
the other hand, the Select Committee of the Rajya Sabha had in its
report suggested 100 percent compensation for possible loss of revenue
for five years.
Service Tax Assessment: The Council will also discuss on the
problematical issue of the Centre retaining power to assess 11 lakh
service tax filers under the new dispensation. While a decision to this
was taken at the first meeting of the GST Council, at least two states

were indecisive on approving the minutes of the meeting, stating they

are not in favor of losing power of assessment of these assesses.

Benefits for Logistics:

With GST, the ride for logistics just got better. This indirect tax Bill, which is
likely to result in a uniform tax across goods and services, except petroleum,
alcohol, tobacco and selected products, will alter the way industries, logistics
and supply chains operate. The Bill is set to be rolled out on April 1, 2017 and
will optimize production, inventory and distribution nationally. Besides this,
the GST Bill will also help speed up cargo movement.
A 2015 combined report by the Transport Corporation of India and the Indian
Institute of Management Calcutta (TCI-IIM-C) shows that the stoppage
expense, i.e., average expense incurred due to the stops along the way such as
check-posts and customs per ton-km has increased from Rs. 0.16 per ton-km
to Rs. 0.28, a 75 percent increase between 2011-12 and 2014-15.
Over the past one year, the movement in stock prices of logistics players has
been mixed. TCI share price and Allcargo Logistics have gone up by 9 and 13
per cent, respectively, while the GATI share price and VRL Logistics were
beaten down by 19 and 16 per cent, respectively.
Similarly, the price to earnings ratio (trailing 12-month earnings) of major
stocks such as Allcargo Logistics (16 times), GATI (31 times), VRL Logistics
(28 times) and Transport Corporation of India (16 times) are lower than their
three-year average.
This indicates that the positive impact of GST may not have been completely
priced in yet.
With a fixed GST rate that is expected to vary anywhere between 18 and 22
percent, together with virtual melting of State boundaries, the abundant
smaller warehouses in many locations are projected to be consolidated into
bigger ones.

The Transport Corporation of India is by now in the process of building GSTready warehouses across four locations in India and so are others. With the
Tax structure in place, the containerization in full throttle and reduction in
transit time, GST is set to benefit Logistics in more than one way.

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Article Written by
Tanaya Nath