In a latest hike plan that is meant to tweak the GST structure, the Goods and Services Tax (GST) rate rationalisation of Ministers of the GST (GoM) has suggested a steep hike on what is negative products such as cigarette, tobacco and soda. The proposed hike sets the mobile communication tax to 35 % up from the current rate of 28%.
It will be a contentious issue being discussed in the next GST Council meeting with the Union Finance Minister along with her state ministers on December 21st. The provisions of these recommendations will be presented before the council and this may lead to the making of the finality on the specific change in the GST rates.
The GoM has been inspecting the tax rates on some of these goods very closely and owing to its scrutiny there has been proposed changes. Interestingly, the changes in the rates are not limited to sin goods only as will be seen below. For example, the nature of the tax structure for apparel will also undergo some changes.
Apparel priced up to Rs 1,500 will be GST @ 5%, garments costing between Rs 1,500 and Rs 10,000 will be at 18% GST and garments over and above Rs 10,000 will attract a GST of 28%. For these reasons, the GoM has made a number of adjustments in order to claim it can reduce the tax structure while also handling issues of revenue consequences appropriately.
A Scrutiny of the GST Rate Rationalisation
The current GST framework is designed with four distinct tax slabs: 5%, 12%, 18%, and 28%. Because essential goods are necessities, they either do not attract any tax or come with the least taxes so that individuals in the broad population can afford them. On the other hand luxury and sin goods, which are products which are non essential and those that are considered to have a negative impact to the health of those who consume them, are considered for excise duty.
Besides, the 28% slab is levied with a cess on luxury and demerit goods which the government again uses to discourage people from consuming such products as it at the same time generates more revenues for the government.
Here changes proposed by the GoM are very voluminous covering a total of 148 subjects within the tax brackets.
These changes are incremental under head of measures aimed at rationalizing the GDP collection of GST or to say the least, realigning the GST tax rates in light of the contemporary economic and social realities. The official report on the undertaken recommendations also stresses the possible positive effect on revenues which will underline the managerial value of these rates’ changes.
Effects of Changes in Breed Standards
The increase of the tax on sin goods to 35% is some progress as we have seen the government change its focus from quantity to quality consumption of unhealthy products. On tobacco and related products and aerated beverages the GoM has agreed to propose a special rate of 35 percent.
The existing arrangement of four slabs which are 5 %, 12 %, 18 % and 28 % will remain the same and a new slab at 35 % is to be introduced by the GoM, said an official. This is in consonance with what the government has been doing in recent time, making improvement to the existing public health facilities, at the same time creating another window for generating more revenue.
Proposals of the GoM are not limited to the increase in rates for some products only. During its last meeting in October last year, the panel had recommended the GST on packaged drinking water of 20 litres and above be lowered from 18% to 5 per cent and bicycles under Rs 10,000 from 12 per cent. They also suggested reducing the Goods and Services Tax for exercise notebooks from 12% to 5% as well as the increase the GST for shoes and wristwatches above particular prices.
These recommendations are based on the factors making moderate on the desirability of changing tax rates making a fair between health insisting and other economic aspects. While the GST Council is set to meet again to discuss these proposals, extra rounds of rate rationalisation will be seen in the future.
The council may decide to continue the GoM’s mandate, allowing for ongoing adjustments to the GST structure. This iterative process aims to ensure that the GST rates remain aligned with evolving economic conditions and policy objectives.
“Tobacco GST” becomes trending on Google
The increase to 35% proposed on GST for aerated drink, cigarettes and tobacco put to edge “Tobacco GST” among the most searched topics on Google Tuesday morning. It was found to have registered 10,000 searches using Google Trends the topic which saw a staggering 700 percent increase in interest in the past four hours this morning.
The proposed increase in GST will be the first major rejigment of tax rates under the GST regime that have taken effect seven years ago. A standard tax of 30% is being proposed for the so-called “sin foods,” and beverages especially beers, CSDs, cigarettes and products containing tobacco.
This recommendation came out of a meeting held Monday by the GoM Rate Rationalisation which concluded its report in preparation for the GST council meeting planned for December 21. The GoM also proposed changes for more than 148 items besides seeking imposition of a sin tax rate, in the readymade garments as well.
For garments, the GoM, led by Bihar Deputy Chief Minister Samrat Choudhary, recommended a tiered GST structure:
5% for the items with price tags of up to ₹1,500.
14% for customers whose orders are between ₹1,500 and ₹10,000.
28 % if the garments cost Rs. 10,000 and above.
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