New Delhi: The Proposed 35% Special Rate of GST on Sin Goods

The Indian government is considering a new 35% special rate of GST on sin goods, such as tobacco, cigarettes, and soft drinks, as a starting point for the post-compensation cess era. This move aims to ensure that the effective rate of tax does not significantly decrease once the compensation cess is removed from April 2026.

Currently, several sin and luxury goods face a 28% GST, with the compensation cess increasing the effective rate. For instance, soft drinks face a 12% compensation cess, taking the overall tax burden to 40%. For certain tobacco products, the effective rate tops 100%, including cess.

Industry watchers anticipate a new cess to come in, which can be used by the Centre to meet specific funding requirements in sectors, such as health or education. The Central Board of Indirect Taxes and Customs, however, stated that the news reports are premature as a group of ministers led by Bihar deputy CM Samrat Chaudhary is working on the recommendations and is yet to submit its report.

Finance Minister Nirmala Sitharaman tweeted, "Finance ministers from various states in the GoM are working to address GST rate changes. Thereafter, the GST Council, consisting of all state FMs will take up their recommendations, when they next meet. Speculation is better avoided." The GST Council is scheduled to meet in Jaisalmer on Dec 21.