The Goods and Services Tax (GST) Council is likely to discuss options to keep the overall tax incidence on tobacco and other sin goods unchanged as India moves towards a two-rate GST structure. The meeting is scheduled for September 3–4, according to reports.
Currently, tobacco attracts nearly 52% tax through a combination of GST and cess, but the law limits the maximum GST rate at 40%. To avoid revenue loss for states, the Council may either impose a new compensatory cess or raise the statutory GST ceiling beyond 40%.
A government official told Moneycontrol that states’ revenues are heavily dependent on State GST (SGST), and any change in slabs without compensation could lead to major revenue loss. The Centre estimates that removing the 12% slab could result in a shortfall of about Rs 80,000 crore, while exempting life and health insurance premiums may cost another Rs 9,700 crore.
Some states including West Bengal have already raised concerns on revenue erosion due to rate rationalisation. Officials said the Council may also consider reintroducing excise duty on tobacco as an alternative. Excise duty is part of the divisible tax pool from which 41% is devolved to states as per the Finance Commission formula and is a predictable revenue stream.
The statutory compensation mechanism ended in 2022 and the next meeting is expected to build consensus on measures to protect state finances. The focus will be on high tax incidence on luxury and sin goods like tobacco through cess, higher GST cap or excise duty.
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Source: Moneycontrol
News Desk
