Is a 35% GST Slab the Right Move? Insights from Experts
The GST Council is set to discuss a Group of Ministers’ (GoM) proposal to introduce a special GST rate of 35%, targeting tobacco products, aerated beverages, and other luxury goods. Currently, most of these items fall under the 28% GST slab, with additional cess applicable to tobacco products.
This move has sparked a debate among experts, raising questions about its potential impact on India’s tax framework, already criticized for its multiple tax slabs.
Proposed GST Revisions: What’s on the Table?
The GoM has suggested increasing GST rates on the following:
- Tobacco Products: From the current 28% to 35%, with compensation cess to continue.
- High-End Consumer Goods: Including readymade garments, cosmetics, watches, and luxury shoes.
- Aerated Beverages: Likely to see the same hike as tobacco.
While these are still recommendations, Finance Minister Nirmala Sitharaman clarified that the GST Council, not the GoM, will make the final call on December 21.
Key Concerns from Industry Experts
1. Compliance Complexity
Najib Shah, former CBEC Chairman, highlighted that additional GST slabs could complicate compliance, detracting from the original goal of a streamlined tax system.
“Introducing a 35% slab may create more confusion and compliance burdens, especially if the cess component is retained.”
2. Revenue Distribution
Saurabh Agarwal, Tax Partner at EY India, noted that cesses offer the central government greater revenue control, as GST collections are shared with states. This could explain the continued reliance on cess frameworks, despite the strain it places on certain industries.
3. Structural Distortions
MS Mani from Deloitte India raised concerns about introducing a new rate rather than adjusting existing ones. He argued that the move risks distorting the GST structure, especially if more goods are added to the 35% bracket in the future.
4. Tax Burden on Consumers
While luxury and sin goods attract higher taxes to discourage consumption, there is apprehension that this rate hike may pass the cost onto consumers, disproportionately affecting middle-income groups.
Current GST Rates: A Quick Overview
| Goods Type | GST Slab | Additional Cess |
|---|---|---|
| Essential Items | 0%-5% | None |
| Standard Goods | 12%-18% | None |
| Luxury & Sin Goods | 28% | 11%-290% compensation cess |
| Proposed 35% Goods | 35% | Likely with cess |
Is a 35% GST Slab the Right Move? Insights from Experts
The GST Council is set to discuss a Group of Ministers’ (GoM) proposal to introduce a special GST rate of 35%, targeting tobacco products, aerated beverages, and other luxury goods. Currently, most of these items fall under the 28% GST slab, with additional cess applicable to tobacco products.
This move has sparked a debate among experts, raising questions about its potential impact on India’s tax framework, already criticized for its multiple tax slabs.
What the Courts Have Said
The issue of cess has been contested in various legal cases. For instance, in Union of India vs. Mohit Minerals Pvt. Ltd., the Supreme Court clarified that cesses under GST are constitutional and can be levied to compensate for revenue loss to states post-GST rollout.
Such judgments underscore the importance of compliance with both GST and cess requirements, especially for industries like tobacco that face stringent scrutiny.
The Road Ahead
The proposed 35% GST slab could signal a shift towards higher taxation on luxury and sin goods. While this aligns with the principle of progressive taxation, experts warn that it risks creating compliance burdens and revenue distortions.