The Group of Ministers (GoM), during a meeting on Monday, December 2, 2024, has proposed a hike in the Goods and Services Tax (GST) on aerated beverages, cigarettes, tobacco, and related products. The proposed rate increase would elevate GST from 28% to 35%, according to an unnamed official cited by PTI.
"The GoM has agreed to propose a special rate of 35 per cent on tobacco and related products and aerated beverages. The four-tier tax slab of 5, 12, 18, and 28 per cent will continue, and a new rate of 35 per cent is proposed by the GoM," the official stated.
This new proposal will be presented to the GST Council during its meeting scheduled for December 21, 2024. The final decision rests with the council, which will also evaluate the broader implications of the suggested rate changes.
The GST rate on aerated beverages, cigarettes, and tobacco products would increase to 35%, positioning them in a new, higher slab aimed at luxury and demerit goods.
The GoM has also suggested a revised tax structure for apparel, classified into three categories:
Garments priced up to ₹1,500: 5% GST.
Garments priced between ₹1,500 and ₹10,000: 18% GST.
Garments priced above ₹10,000: 28% GST.
This is expected to generate a positive revenue impact, according to officials.
Luxury items such as shoes costing above ₹15,000 per pair and wristwatches above ₹25,000 will attract 28% GST, an increase from the previous 18%.
Meanwhile, the GST on bicycles costing less than ₹10,000 will be reduced from 12% to 5%, as proposed in an earlier GoM meeting.
Similarly, the GST on exercise notebooks is expected to drop from 12% to 5%.
The GoM aims to align tax rates with broader goals, such as reducing the consumption of demerit goods like tobacco and aerated drinks, while also addressing affordability for essential items like packaged drinking water and notebooks.
Luxury goods, which currently attract an additional cess on top of the highest 28% slab, are targeted for further tax rationalization, consistent with the government’s approach to creating a fairer tax regime.
"The net revenue impact will be positive," the official affirmed, indicating that the revisions are expected to bolster government revenues.
The GST Council will:
Review the GoM’s proposals during its December 21, 2024 meeting.
Evaluate the necessity for continued rate rationalization exercises.
The council may decide to retain the GoM to ensure that periodic reviews of GST rates are conducted for better economic outcomes.
The proposed hike in GST rates for tobacco products, aerated beverages, and luxury items underscores the government’s dual intent: to dissuade consumption of demerit goods while bolstering tax revenues. The suggested new 35% slab represents a significant shift in the taxation framework, particularly for goods deemed non-essential or harmful.
Simultaneously, reductions in GST for essential items like bicycles and exercise notebooks aim to provide relief to the common man, promoting affordability.
As the GST Council prepares to deliberate on these recommendations during its December 21 meeting, the outcomes will shape consumer spending patterns and industry pricing strategies in the coming year. The broader implications of these tax revisions reflect a strategic move towards a more equitable and health-conscious taxation system, with a strong focus on revenue optimization and public welfare.