India is on track to announce a massive overhaul on Sin goods taxation starting with a mark-up on tobacco products, cigarettes, and aerated beverages under the Good and Services tax policy. Reports that have come in from PTI reveal that there will now be a higher rise in taxes culminating in 35% imposition on these categories compared to 28%. This particular move is speculated to be detrimental to the economy as well as businesses related to these industries. A detailed explanation of the parameters of the change is discussed further and its likely effects are assessed.
Effects on the Tobacco Industry and Beverages Industry as a whole.
The anticipated changes in policy have already begun to influence how the market had previously been operating. Following the announcement of the new taxation policy and its imposition there has been significant drops in the stock market share prices for large operators in both the tobacco and beverage markets.
ITC Limited: the share prices began to depreciate by 3 percent with the lowest price for the day being at ₹462.80
Godfrey Phillips: share prices of the company decreased by 3.2 percent dropping to 5,575.50
VST Industries: The market shares for the short period depreciated by 2.3 percent with the lowest price being ₹318.30
These activities were caused by the GOM on GST rate rationalisation which was tabled by the Proposal Marshall to introduce a tax rate of 35% on Sin goods emphasizing consumption reduction.
Components of the Suggested Change in GST Rate
The GOM has recommended the addition of a special category for sin goods of 35 percent while coastGPM COST S A TM,9. , 3 Drah a -imgo t a inpg special category for nagood hink oh, levith anatotte at. This aims to ease the tax structure while enhancing government revenue.
A few of the sin goods that have now been covered under the new rate are:
Soft drink, Tobacco, Cigars
The new rates are expected to be ratified at the scheduled 55th GST Council meeting to be held on December 21 at Jain Smer. The council which is led by Finance Minister Nirmala Sitharaman will consider the GOM report before instituting the changes.
Other Additional Changes in GST Across Other Categories
GOM meeting headed by Bihar Deputy Chief Minister, Education also recommended several rate changes across other categories to enhance the simplicity of the tax system and collection.
Proposed GST rates on Apparel:
Up to `1,500: 5% GST
More than 1,500 and less than 10000: 18% GST
More than 10,000: 28% GST
The recast of the categories is intended to bring comparability of taxation on apparel across price categories.
Changes for other products were discussed in the October Meeting:
At the October GOM Meeting concerning Supply, different proposals were put forward to the member economies to balance between revenue collection and affordability amongst the consumers:
The rate on packaged drinking water of more than twenty liters was reduced from 18% to 5%.
Fewer than a ₹10,000 bicycle, has reduced it from 12 percent to 5 percent.
Exercise notebooks – decreased from 12% to 5%
Pairs of shoes above ₹15,000 – increased from 18% to 28%
Wrist watches above ₹25,000 – increased from 18% to 28%
These changes are in line with the design of the government to apply greater taxes on luxury and demerit items and reduce taxes on basic items.
Effects of GST increase for sin goods
The justification for increase in GST for sin goods is expected to address two goals:
Expand Revenue Earning: The more tax imposed, the more going into the government treasury, considering these are products with inelastic demand such as tobacco and aerated drinks.
Reducing Use: The plan it is to cut the use of unhealthy products by increasing their price which corresponds to the population health improvement efforts.
Nonetheless, the move has raised eyebrows of the concern especially for those in the industries who depend on the use of these offerings. Tobacco and beverage companies might struggle with demand because of the loss of customers which may mean they lay off employees and the output levels go down.
What Might Follow?
The recommendations of the GOM will be subjected to further discussions in the forthcoming December GST Council meeting. Thereafter, it is anticipated that the new tax rates will come into effect immediately. This alteration is expected to transform the tax regime in a number of ways for both the businesses as well as the consumers in India.
Conclusion
The increase in the GST on sin goods proposed here, signifies a fundamental shift in policy focus from revenue maximisation to nullifying epidemiological concerns. Even though it may result in increased prices across consumers and polycracy, the government acknowledges it as a move towards a more just and elastic tax system. With the ultimate decision approaching, the entire attention is directed toward the GT Council meeting to define the destiny of India’s GST.