Tobacco products and cigarettes could see a GST rate hike from 28% to 35%.
The Indian government is considering a proposal to increase the Goods and Services Tax (GST) on certain products like cigarettes, tobacco, and luxury goods. If approved, consumers could see prices rise significantly, with rates for these items jumping from the current 28% to a proposed 35%.
This move aims to not only boost government revenue but also reduce the consumption of health-harming products, aligning with public health objectives. Here’s a closer look at the potential changes:
Sin Goods
- Increased GST Rate: Tobacco products and cigarettes could see a rate hike from 28% to 35%.
- Additional Taxes: These products already incur extra taxes based on their specifications, such as length for cigarettes (5% to 36%).
Impact: Higher taxes may lead to increased prices, potentially reducing consumption and promoting healthier lifestyles. However, manufacturers will face challenges, including reduced profit margins and a need for revised marketing strategies.
Luxury Goods
- Varied Rate Hikes: The government may impose higher rate on items like cars, high-end washing machines, and other premium products.
- Specific Categories: Shoes priced over ₹15,000 and watches over ₹25,000 could be moved into the 28% category.
Impact: Luxury goods could become costlier, affecting consumer demand in this segment.
Garments
- Revised Tax Structure:
- 5% for items priced up to ₹1,500.
- 18% for items priced between ₹1,500 and ₹10,000.
- 28% for items priced above ₹10,000.
Impact: The tiered structure may encourage buyers to opt for lower-priced options.
Insurance
- Tax Relief for Senior Citizens: No GST on policies providing coverage up to ₹5 lakh for senior citizens.
- Standard Rate: An 18% GST applies to coverage exceeding ₹5 lakh.
Impact: This move benefits senior citizens by lowering their financial burden while maintaining standard rates for others.
Market Reactions and Public Sentiment
The proposal, if implemented, could significantly impact industries like tobacco and luxury goods. Share prices of major tobacco companies, such as ITC, VST Industries, and Godfrey Phillips, have already fallen by up to 3% amid investor concerns over the potential price hikes.
However, the government’s strategy focuses on balancing revenue generation with public welfare. By sparing essential goods from GST increases, the proposal aims to minimize backlash while targeting products that harm health or are deemed non-essential.
Key Takeaways
The proposed GST hike reflects the government’s dual goals of revenue enhancement and public health improvement. While consumers may face higher prices on luxury and sin goods, everyday essentials remain unaffected, ensuring minimal disruption to the average household.
If implemented, this tax reform could reshape consumer behavior, bolster the exchequer, and further the country’s health and wellness agenda. Stay tuned for updates as the cabinet committee deliberates this crucial decision.
Also Read: Rectification of DRC-7 (Summary Order) under GST: A Comprehensive Guide
Experts view on the potential rate rationalization
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