Soft Drinks, Energy Drinks Prices Rise as GST Increased to 40%

The GST Council authorised an increase in taxes on sin and luxury goods on 3 September, establishing a new 40% bracket for commodities including tobacco, pan masala, aerated drinks and luxury cars, despite the announcement of huge GST rate cuts.

With the government moving to a simpler regime with two primary slabs of 5% and 18% in addition to a special 40% rate, the decision represents a significant reform of the indirect tax system.

What are Sin Goods?

Tobacco and sugary drinks are examples of sin goods, also known as demerit goods, which are things deemed hazardous to society or health. These are subject to the highest GST tax rates in an effort to deter consumption and raise more money for social programs.

Sin items will henceforth be taxed at 40%, in contrast to basic goods that are taxed at 5% or 18%. Business organisations in the healthcare and MSMEs sectors support GST 2.0 as a major push for relief and self-reliance.

Higher Tax to Reduce Consumption of Sin Goods

Because sin items, like tobacco and sugary drinks, are deemed detrimental to society or health, a higher GST rate on them is appropriate. The government aims to deter consumption and generate more money for public welfare by making items more expensive. According to the Economic Times, cigarette use alone is thought to cost India more than 1% of its GDP in lost productivity and medical expenses.

The levy's twin purpose of reducing consumption and promoting social activities is further supported by the fact that the money collected by taxing them at a higher slab is frequently utilised to assist welfare and health programmes. Furthermore, despite price increases, buyers frequently keep purchasing these goods since demand for them is very inflexible regarding prices. Sin goods are a dependable source of income for the government since this guarantees that tax collections will increase gradually even if consumption does not decline dramatically.

 Only a few specific things are eligible for the special rate, which is primarily applied to luxury and sin goods. Prior to this, the majority of these commodities were subject to both GST and Compensation Cess. In order to preserve the total tax incidence on the majority of items, the Cess rate is currently being combined with GST, as the government has chosen to discontinue the Compensation Cess charge. According to the Central Board of Indirect Taxes and Customs, other goods and services were already subject to the maximum GST rate of 28%; hence, the special rate was applied to them.