The GoM has also proposed to tweak GST on at least 148 items. They have recommended increasing the tax on high-end readymade garments, cosmetics, watches, and shoes among others.
However, here’s a caveat: these are only proposals and the final decision will be taken by the GST Council when it meets on December 21.
Najib Shah, former Chairman of CBEC India, observed that recent measures aimed at achieving equity have introduced additional complexity and compliance challenges. He highlighted that the focus was expected to be on addressing one of GST’s primary criticisms: the presence of multiple tax slabs.
Shah expressed uncertainty about the rationale behind the proposed 35% rate and suggested it might involve merging the cess component into existing rates or expanding the 28% slab.
He also noted concerns over classifying more goods under the highest tax bracket and expressed interest in the outcomes of the upcoming discussions on the 21st.
Read Here | GST on cigarettes, tobacco, aerated drinks may jump to 35%, says sources
Additionally, a compensation cess is levied on tobacco products over and above the 28% GST, making them among the most heavily taxed items under the GST regime.
Tobacco products are among the items subject to the highest GST cess rates, ranging from 11% to 290%. Therefore, it is crucial for all suppliers of tobacco and related products to stay informed about the applicable GST cess rules and regulations.
MS Mani, Partner-GST at Deloitte India, raised concerns about the introduction of a new 35% GST rate and its potential coexistence with a cess rate, possibly rebranded as a health cess for sin goods. He questioned the rationale behind creating an additional rate slab instead of integrating the increased revenues into the existing cess framework.
Highlighting the already high cess rates on certain tobacco products, such as 204% and 160%, Mani cautioned that introducing a new rate category could lead to further distortions in the GST structure, particularly if other products are later added to this bracket.
Read Here | GST on readymade garments: GoM considering price-based slab of up to 28% tax, say sources
Saurabh Agarwal, Tax Partner at EY India, emphasised that GST’s tiered rates aim to ensure higher taxation on luxury goods, aligning with the principle that those who can afford such items contribute more to government revenues. He also noted that the continuation of cesses allows the central government to retain greater control over revenue distribution, unlike GST collections, which are shared between the states and the center.
Under GST, essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury goods like cars, and washing machines, and demerit goods like aerated water and tobacco products attract cess on top of the highest 28% slab.
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Also Read | GST rate rationalisation: GoM may propose a 35% ‘special rate’, rejig likely for over 148 items, say sources
