New Delhi: The highly anticipated GST rates overhaul has kept Cigarettes and other tobacco products within the 40% tax bracket in effect, as the earlier 28%+ compensation cess tax has been consolidated into one bracket. The much-touted GST 2.0 overhaul hasn’t made much of a difference to the ‘sin goods’ classification- products and services that the government taxes at a higher rate in a bid to discourage their use.
What falls under the special 40% tax slab under GST 2.0?
- Gutka,
- Chewing Tobacco,
- Pan Masala,
- Aerated soft drinks (carbonated-both fruit and non-fruit based),
- Yachts,
- personal aircraft,
- racing cars,
- betting,
- casino
- lottery tickets
- Motorcycles over 350cc engine capacity
- Petrol cars above 1,200 cc (including large SUVs and luxury vehicles)
- Diesel cars above 1,500 cc
- Admission charges to IPL and casinos
Alcoholic drinks will continue to be taxed separately by the states outside the ambit of the GST Act, 2017.
Discouraging vices, boosting tax collections
The government aims to discourage gambling, smoking and the purchase of luxury goods through this special 40% tax rate. According to reports, tobacco consumption drains more than 1% of our GDP, translating to about $27.5 billion, according to a study by the WHO. The special 40% tax slab is exclusively for such goods, as the government intends to simplify the highly cumbersome and complicated 4 slab GST tax rates to a 2 slab GST rate structure, aimed to be implemented from September 22.
Additionally, the demand for these products and services remains stable, despite the associated financial costs. The government aims to use the proceeds of these collections to fund the compensation loans to the states due to the revenue shortfall after the GST implementation is fully paid, Finance Minister Nirmala Sitharaman said.
