The stocks of major tobacco companies in India, including ITC Ltd., Godfrey Phillips Ltd., and VST Industries Ltd., saw a decline following reports of a potential 35% tax on sin goods under the Goods and Services Tax framework. This proposal, made by the Group of Ministers on GST rate rationalisation, could have a significant impact on sales and profits for tobacco manufacturers. However, it is just one part of a larger GST reform plan, including other recommendations for tax adjustments and the end of the compensation cess in 2026.
On December 3, 2024, the Goods and Services Tax Council met in Jaisalmer to discuss important pre-budget consultations and health-related matters. Among the key decisions made were the proposal to increase GST on cigarettes, tobacco, and beverages to 35%, and the request for an extension for the GoM to submit its report on GST compensation cess. The Council also planned to discuss potential tax cuts for non-alcoholic beverages based on sugar and the rationalization of GST rates. Additionally, the meeting aimed to address concerns surrounding the GST on health insurance and the potential reduction of insurance levies.
The GST Council is planning to raise taxes on certain goods, including cigarettes and tobacco, from 28 per cent to 35 per cent, in an effort to generate additional revenue. The proposed changes will also impact the tax rates for apparel, with prices for items costing up to Rs 1,500 attracting a 5 per cent GST, those between Rs 1,500 and Rs 10,000 attracting 18 per cent, and those above Rs 10,000 attracting 28 per cent. The GoM on the tax rate rationalization is expected to make their recommendations to the GST Council on December 21.