GoM Proposes New Tax Rate for “Sin Goods”
The Group of Ministers (GoM) on GST rate rationalization has recommended increasing the Goods and Services Tax (GST) on aerated beverages, cigarettes, and other tobacco products from the current 28% to 35%. This significant adjustment is aimed at bolstering revenue collection and aligning tax rates with broader fiscal objectives, according to a report by news agency PTI.
Chaired by Bihar Deputy Chief Minister Samrat Choudhary, the GoM convened on Monday to finalize the proposed rate changes. Apart from revising taxes on “sin goods,” the GoM also reviewed the GST structure for apparel and other categories. Under the proposed framework, items priced up to ₹1,500 would continue to attract a 5% tax, while goods priced between ₹1,500 and ₹10,000 would remain taxed at 18%. Products exceeding ₹10,000 would incur a 28% tax.
The Group of Ministers’s recommendations encompass 148 items, reflecting an ambitious effort to optimize GST collections. The report is slated for presentation to the GST Council on December 21, 2024. Comprising Union and state finance ministers, the council will determine the final course of action.
Current GST Framework and Proposed Adjustments
Under the existing GST system, goods are categorized into four primary slabs: 5%, 12%, 18%, and 28%. Essential items are exempt or taxed at the lowest slab, while luxury and demerit goods, such as cars, washing machines, tobacco, and aerated beverages, fall under higher tax brackets. These items also attract an additional cess, further increasing their tax burden.
If implemented, the proposed 35% rate would mark a departure from the current structure, potentially creating a fifth tax slab. This measure, the GoM suggests, would effectively target demerit goods while leaving the existing slabs untouched. “The introduction of the 35% rate aims to streamline tax collection on goods considered harmful, such as tobacco and aerated drinks,” an official was quoted as saying.
The GoM also discussed extending its mandate to allow for periodic reviews of GST rates. This would ensure a dynamic approach to tax adjustments based on economic trends and revenue needs.
Earlier Proposals and Broader Impact
The Group of Ministers’s latest recommendations follow a series of rate-related proposals from its October meeting. These included reducing GST on packaged drinking water (20 liters and above) from 18% to 5%, bicycles costing less than ₹10,000 from 12% to 5%, and exercise notebooks from 12% to 5%. Conversely, luxury items such as shoes priced above ₹15,000 per pair and wristwatches exceeding ₹25,000 were proposed to face higher taxes, moving from 18% to 28%.
As the council deliberates on these recommendations, the proposed changes underscore the government’s dual focus on maximizing revenue and discouraging the consumption of harmful goods. If approved, the new tax structure could reshape the GST landscape and influence market dynamics, particularly for luxury and demerit goods.
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