(Photo : GST Council)
GST

The Group of Ministers (GoM) on GST rate rationalization, in its meeting held on Monday, proposed increasing the Goods and Services Tax on aerated beverages from the existing 28% to a new 35% slab. The GST council will deliberate on the proposed hike at the council's meeting scheduled for December 21.

In addition to the aerated beverages, the government is also planning to bring the sin goods such as tobacco and cigarettes under the 35% GST slab. Currently, aerated beverages fall under the highest GST slab of 28%, along with an additional cess. The proposed increase to 35% would be a significant shift in India's indirect tax system, which currently operates on a four-tier system of 5%, 12%, 18%, and 28%.

The GoM’s proposal aims to create a new slab specifically for Demerit goods, which also include tobacco and cigarettes. Apart from the aerated beverages the council will also consider rate changes for other goods, such as reducing GST on bicycles priced below ₹10,000 and packaged drinking water above 20 litters, alongside potential hikes for luxury goods like high-end shoes and watches.

Sin goods have been the target of higher taxation due to their perceived social costs, and it aligns with the government's strategy to reduce the consumption of such goods while boosting the revenue. However, bringing the aerated beverages under the 35% tax bracket has triggered a debate with industry players pointing out that, the move if approved, will lead to disruption to sales, and job losses as many small scale local manufactures across the country will get impacted.

Smaller manufacturers of beverages might struggle to absorb the increased tax burden, which could lead to job losses or reduced production. Further the move will directly impact the pricing of aerated beverages, likely resulting in a significant increase in retail prices. On the consumer side, the hike aligns with the government's public health agenda, as increased prices are expected to deter consumption. However, critics contend that higher taxes may inadvertently encourage a black market for cheaper alternatives, resulting in the policy's objectives.

Many countries have implemented higher taxes on sugary drinks to combat obesity and related health issues. For example, nations like the UK, South Africa and Mexico levy significant taxes on sugar-sweetened beverages, with studies pointing to observable reductions in SSB consumption patterns. The GST Council’s decision on December 21 will likely set a precedent for taxing sin goods in India. While the proposed hike aims to balance public health concerns and revenue generation, its implementation will require careful consideration of its impact on the industry, employment, and consumer behaviour.