GST Hike on Cigarettes, Tobacco, and Soft Drinks to 35%

GST Hike on Cigarettes, Tobacco, and Soft Drinks to 35%

The Indian government is set to implement a major tax overhaul, with proposals to raise GST on cigarettes, tobacco, and aerated beverages to 35%. This shift, aimed at boosting revenue and streamlining tax rates, could impact prices of common goods, including apparel, as the GST Council prepares to review these changes on December 21. Here’s what you need to know about the upcoming adjustments.

GoM Proposal on Sin Goods:

• • The Group of Ministers (GoM) on
  • rate rationalization, convened on December 2, 2024, has proposed raising the GST on sin goods like cigarettes, tobacco, and aerated beverages to 35%, up from the current 28%.

• Changes in Garment Taxation:

  • New GST rates for readymade garments have been suggested:
    • Garments costing up to ₹1,500: 5% GST.
    • Garments priced between ₹1,500 and ₹10,000: 18% GST.
    • Garments over ₹10,000: 28% GST.

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• Impact on Revenue:

  • • The proposed changes, which affect 148 items, are expected to have a positive net revenue impact.

  Next Steps:

  • The final decision on these rate changes will be made by the GST Council during its meeting on December 21, 2024. The Council, chaired by Union Finance Minister Nirmala Sitharaman, will consider the GoM’s recommendations.

• GST Structure and Special Rate Proposal:

  • The four-tier GST structure, with rates of 5%, 12%, 18%, and 28%, will remain in place.
  • A new special 35% tax rate is proposed for tobacco, related products, and aerated beverages.

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• Current GST System:

  • • Under the current system, essential items are taxed at the lowest rates, while luxury and demerit goods (like cars, washing machines, tobacco, and aerated beverages) are subject to higher rates, with an additional cess.

  Future of the GoM:

  • The GoM’s report will be presented to the GST Council, which will decide if further rate rationalization is necessary. The Council may choose to keep the GoM in place for ongoing reviews.

• Previous GoM Proposals:

  • In the October 2024 meeting, the GoM proposed several changes, including:
    • • Reducing GST on packaged drinking water (20 liters and above) from 18% to 5%.
      • Reducing GST on bicycles costing less than ₹10,000 from 12% to 5%.
      • Increasing GST on shoes over ₹15,000 per pair and wristwatches above ₹25,000 from 18% to 28%.

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The proposed changes to GST rates reflect the ongoing efforts to rationalize India’s tax structure and address the taxation of both essential and luxury items. The GoM’s recommendations, including the hike in tax on sin goods and the adjustment of garment tax rates, are expected to generate positive revenue impact. With the final decision resting with the GST Council on December 21, these adjustments could have significant implications for both consumers and businesses. As the GoM continues to review the GST structure, further changes could follow, indicating a dynamic approach to tax policy in India.

Disclaimer: The information provided in this article is for general informational purposes only. It is not intended as financial or legal advice. Please consult your financial advisor before making any decisions.