Industry chamber Assocham has made a pitch to Finance Minister Arun Jaitley not to levy cess, but hike GST rate by 1-2 per cent to garner additional resources to compensate states for any revenue loss on rollout of the new regime from April next year.

At the GST Council meeting last month, the Centre had proposed a four-tier GST rate structure of 8 per cent, 12 per cent, 18 per cent and a peak rate of 26 per cent, which will mostly apply to FMCG and consumer durables. Besides, a cess is also likely to be levied on demerit or sin goods and polluting items.

In a letter to Jaitley, Assocham Secretary General D S Rawat said that even if multiple rates are accepted by the GST Council, additional cess should not be made applicable as this would lead to distortion and cascading of taxes.

"The idea of levying cess in order to make a corpus for compensation to states does not seem to be feasible. The additional revenue required for such compensation can be collected by increasing the tax rates (by 1-2 per cent) instead of levying a cess," he said.

The suggestion, however, is at variance with Jaitley's contention, who had favoured levy of cess on tobacco and luxury products to compensate states, saying the cost of funding that through an additional tax would be "exorbitantly high and almost unbearable".

Assocham has also suggested that essential commodities of mass consumption like fruits, vegetables, grains etc should be taxed at zero rate. Processed food products for mass consumption like dairy products, rice, edible oil, biscuits should attract 6 per cent duty.

It further suggested that mobile phones, computers, fruit juices, pet foods be taxed at 12 per cent and other items at 18 per cent. Luxury cars, tobacco and pan masala should be taxed at 26 per cent, it said.

Under the proposed 4-slab structure, the items which are currently taxed between 3-9 per cent will fall in the 6 per cent bracket; those in 9-15 per cent range will come under 12 per cent rate.

Those products which are currently taxed between 15-21 per cent will attract 18 per cent levy while those above 21 per cent will be taxed at the peak rate of 26 per cent.

The GST Council, which has Union Finance Minister and his state counterparts, will decide on tax rates at its meeting on November 3-4 here.

GST rate increase proposed instead of cess to fund state compensation and maintain a structured multi tier tax framework. Assocham urged that state compensation for GST rollout be financed by increasing GST rates marginally rather than by levying a separate cess, arguing a cess would distort the tax system and cascade taxes. It proposed a four tier rate structure allocating zero rate for essential mass consumption items, a low rate for basic processed foods, a middle tier for mainstream goods and electronics, and a peak rate for luxury goods, tobacco and pan masala to guide GST Council rate decisions.