A major development took place when the Group of Ministers (GoM) on rate rationalization of GST on tobacco products and aerated beverages proposed that the rates should be 35%. According to the 28 percent rise in a hike that is predicted, the current whole market of such products is going to change.
The controversies around the tobacco GST rate have engendered a great deal of interest because of potential implications for consumer price and corporate profit. The prescription targets “sin goods” (ie, cigarettes and sugary beverages) are currently subject to both a GST and a compensation cess. For example, the cost to the seller of cigarettes is a 28% GST with a 5% to 36% cess according to length.
First Major Change in GST on Sin Goods Since 2017
According to the proposed novel tobacco GST tax rate, a 35% rate of overall tax will be applied at the national level, and therefore the retail price of these products will be increased due to it. This is in line with the first major change to the GST since its beginning in 2017. There has been a reaction in the stock market to the rumors of an increase in tobacco GST rates.
The stock of cigarette companies such as ITC, Godfrey Phillips, and VST Industries dropped by a maximum of 3% along with the announcement. Shares of Varun Beverages, one of the major players in the India-aerated beverage market, fell by more than 5% amid the ongoing lockdown. As expected, this is in line with investors’ worries regarding decreased demand due to higher price levels.
Broader Tax Adjustments for GST Rates on Tobacco
The GoM further recommended alterations of GST rates for other goods, such as readymade garments, luxury items, and health insurance premium rates. The GST rate in the apparel would be different depending on the price, while for watches and shoes which are considered to be luxury, a 28% tax would be applicable.
These submissions align with the GoM goal, which is to provide revenue but maintain equitable pricing. The final decision on these recommendations will be taken at the GST Council meeting on December 21. Disseminated news related to tobacco GST still occupies the lead of headlines as stakeholders are now debating the likely consequence of these recent tax reforms.
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