• Notification Date: 03-12-2024
• Notification No: N/A

GST on Cigarettes, Tobacco and Aerated Drinks Could Soar to 35%: New Proposal Aims to Improve Revenue

The Group of Ministers (GoM) on GST rate rationalization, led by the Deputy Chief Minister of Bihar, Samrat Choudhary, has proposed a significant tax hike on products such as aerated beverages, cigarettes, and tobacco-related items. According to reports, the GoM has recommended increasing the GST on these goods to 35%, up from the current rate of 28%. This move aims to boost revenue collection and rationalize the tax structure for certain categories.

The GoM's proposal is part of a broader review of the GST system, which currently operates under a four-tier tax structure with rates of 5%, 12%, 18%, and 28%. If approved, this change would introduce a new 35% GST rate for specific products, alongside the existing higher tax rates on demerit and luxury goods that already include a cess in addition to the base tax. These changes are expected to affect a range of products, including tobacco, cigarettes, and aerated beverages, which are already subjected to higher taxes due to their classification as harmful or non-essential.

The decision to increase GST on aerated beverages has sparked discussions and concerns among companies in the sector. For instance, Varun Beverages, a leading player in the market, saw a 5.2% drop in share prices following news of the proposed tax hike. The higher tax rates could further disrupt the growth of India's carbonated beverage market, which is already grappling with rising costs due to steep taxation.

The proposed GST rate changes will be discussed at the GST Council meeting scheduled for December 21, 2024. The Council, which comprises both Union and state finance ministers, will thoroughly review the recommendations and make a final decision. Alongside the proposed hike for tobacco and aerated drinks, the GoM has also suggested adjustments to taxes on other goods, such as bicycles and wristwatches, aimed at boosting revenue and balancing tax rates.

This overhaul of the GST structure is part of the government's ongoing efforts to ensure fair taxation across sectors and streamline the tax system. By introducing a special rate of 35% on specific products like tobacco and aerated drinks, the GoM aims to align the tax burden with the social costs of these products while generating additional revenue for the government.

With the final decision on GST just weeks away, businesses and consumers alike are closely watching how these proposed changes will shape India's tax landscape in the coming years.