GST Ministers may hike Tax to 35% on Tobacco, Cigarettes and Aerated Beverages

The Group of Ministers (GoM) on GST rate rationalisation has proposed raising the tax on aerated beverages, cigarettes, and other tobacco-related products to 35%, up from the current rate of 28%, according to report.

This decision could be part of a larger effort to change tax rates on specific commodities in order to increase revenue collection.

The GoM, led by Bihar Deputy Chief Minister Samrat Choudhary, met on Monday to finalise the proposed rate changes. Along with the increase in “sin goods,” changes to the GST system for apparel and other commodities were considered.

The GoM has suggested tax changes for 148 items in total, with the assumption that the revisions will increase revenue.

The GoM’s report will be delivered to the GST Council on December 21, 2024. The council, chaired by the Union Finance Minister and comprising state finance ministers, will make the final judgment on the proposed amendments.

“The GoM has agreed to propose a 35% special rate on tobacco, allied items, and aerated beverages. The current four-tier tax structure of 5%, 12%, 18%, and 28% will be maintained, with the addition of the new 35% rate,” said an official.

Under the GST system, essential commodities are either exempt or taxed at the lowest rate, whilst luxury and demerit goods are taxed at higher rates. Additionally, luxury goods like cars and washing machines, as well as demerit goods such aerated beverages and tobacco products, are subject to a cess and the highest slab rate of 28%.

The GoM’s proposals will assist the council in determining if there is room for additional rate rationalization. The council may also vote to extend the GoM’s mandate to conduct periodic GST rate reviews.