GoM suggests 35% GST hike on aerated drinks, cigarettes, and tobacco products

The Group of Ministers (GoM) has proposed a significant tax overhaul under the Goods and Services Tax (GST) regime, recommending a 35% tax on "sin goods" like aerated beverages, cigarettes, tobacco, and related products. This would mark the first major restructuring of GST rates since its inception seven years ago.

In a meeting on Monday, ahead of the GST Council's meeting on December 21, the GoM finalized its report, which includes this proposal, along with suggestions for adjusting GST rates on 148 other items, such as readymade garments. The GST rate hike for sin goods, from the current highest slab of 28%, aims to offset revenue losses from rate cuts on common-use products.

The GoM's report also proposes tiered GST rates for garments, with a 5% tax on items priced up to Rs 1,500, 18% for garments priced between Rs 1,500 and Rs 10,000, and 28% for those above Rs 10,000. Additionally, taxes on high-end items such as cosmetics, watches, and shoes may increase, reflecting a move towards a taxation system that is linked to product pricing, with higher taxes on luxury goods.

The upcoming GST Council meeting in Jaisalmer will also discuss the possibility of GST on life and health insurance premiums. Health insurance premiums for senior citizens and term life insurance premiums may be exempt, while health insurance coverage up to Rs 5 lakh could be exempt for all citizens, with a rate of 18% applied to coverage above that threshold.

Earlier proposals in October suggested cutting GST rates on items such as packaged water (over 20 liters), bicycles under Rs 10,000, and exercise notebooks. Other changes include raising the tax on luxury shoes priced above Rs 15,000 and wristwatches over Rs 25,000, which would shift to the highest GST slab of 28%.

Separately, the GoM on compensation cess, tasked with assessing the future of the cess on sin and luxury goods, has requested a six-month extension to submit its report. This cess, initially set to expire in June 2022, was extended until March 2026 to repay loans taken during the Covid pandemic to compensate states for revenue losses.

The proposed GST changes are part of an ongoing effort to refine the tax system and ensure a balance between revenue generation and the impact on consumers.