India plans hike in ‘sin tax,’ hitting shares of ‘sin goods’

A high-level policy review panel has proposed a sharp hike in the goods and services tax (GST) levied on the so-called ‘sin goods’, including luxury and harmful products, from the current 28% to 35%, The Press Trust of India reported on Monday, citing people aware of the developments.

The group of ministers (GoM) on GST rate rationalization, led by Bihar deputy chief minister Samrat Chaudhary, suggested raising the tax on aerated beverages, cigarettes, tobacco, and related products to 35%.

Sin goods are products or services that are often viewed by the government as harmful to people or society mostly because their addictive nature or negative health and social impacts. These goods are subject to higher taxes, known as “sin taxes,” to discourage their consumption.

Shares of cigarette makers ITC Ltd and Godfrey Phillips and bottling firm Varun Beverages Ltd declined by about 1% on Tuesday.

The ministerial panel also reviewed the GST on apparel and suggested changes. For readymade garments, products priced up to Rs1,500 will be taxed at 5%, those between Rs1,500 and Rs10,000 will be taxed at 18%, and garments above ₹10,000 will fall in the 28% slab.

The changes will affect 148 items, which the ministerial panel plans to present to the GST Council on 21 December for further discussion, PTI reported.

A final decision will be made by the council, which is headed by Union finance minister Nirmala Sitharaman and includes state finance ministers.

“The GoM has agreed to propose a special rate of 35% on tobacco and related products and aerated beverages. The four-tier tax slab of 5%, 12%, 18%, and 28% will continue and a new rate of 35% is proposed by the GoM,” the official said.