The GST Council on Wednesday approved a sharp hike in taxes on sin and luxury goods, creating a new 40 per cent slab for items such as tobacco, pan masala, aerated drinks and premium vehicles. The move marks a major restructuring of the indirect tax system, as the government transitions to a simplified regime with two main slabs of 5 per cent and 18 per cent, alongside a special 40 per cent rate. A higher GST rate on sin goods is justified because these products are considered harmful to health or society, such as tobacco and sugary drinks. By making them more expensive, the government seeks to discourage consumption while also raising additional revenue that can be directed towards public welfare. Cigarette consumption alone is estimated to drain over 1 per cent of India’s GDP through healthcare costs and productivity losses, according to Economic Times. The revenue from taxing them at a higher slab is often used to fund welfare and health programmes, reinforcing the dual role of the levy — to reduce usage and support social initiatives. Moreover, demand for these items is highly price inelastic, meaning consumers often continue buying them despite higher prices. This ensures that tax collections rise steadily even if consumption does not fall significantly, making sin goods a reliable revenue source for the government. The special rate is applicable only on a few select goods, predominantly on sin goods and some luxury items, and is therefore treated as a special rate. Most of these goods previously attracted Compensation Cess in addition to GST. Since the government has decided to end the Compensation Cess levy, the Cess rate is now being merged with GST to maintain the overall tax incidence on most goods. For other goods and services, the special rate has been applied because they were already attracting the highest GST rate of 28 per cent, as explained by the Central Board of Indirect Taxes and Customs. The overhaul also removes the earlier 12 per cent and 28 per cent slabs. Most food and textile items will now be taxed at 5 per cent, while everyday household appliances such as refrigerators, air-conditioners and large television sets will shift to the 18 per cent category. Officials said the two-tier system will ease compliance, reduce consumer burden, and maintain high revenue inflows from goods with inelastic demand such as tobacco. (ICE NEW DELHI)

Fonte notizia: Economic Times