Tobacco, luxury items, and other “sin goods” in India will continue to face a 40% GST rate, keeping the total incidence of taxation on cigarettes at 88%. Photo credit: Somyadinkar, Pexels.
The Indian government unveiled a new goods and services tax (GST) proposal that preserves a heavy burden on cigarettes and other tobacco products, even as most other goods move into lower tax brackets.
Under the plan, two slabs of 5% and 18% will replace the current 12% and 28% rates. Nearly all items in the 12% bracket would shift to 5%, while almost 90% of goods in the 28% slab would drop to 18%. However, tobacco, luxury items, and other “sin goods” will continue to face a 40% rate, keeping the total incidence of taxation on cigarettes at 88%.
The announcement hit tobacco stocks immediately. Shares of ITC, India’s largest cigarette maker, slipped 0.65%. Godfrey Philips, which manufactures Marlboro cigarettes in India, plunged 5.24% to an intraday low of INR9,648. VST Industries also fell 1%. Analysts said the sector is unlikely to benefit from GST rationalization, given that the government deliberately maintained tobacco’s elevated tax burden.
Prime minister Narendra Modi announced the proposal in his Independence Day address, saying the draft has been circulated to states and urging cooperation to implement it before Diwali. The panel of state finance ministers will review the draft and place it before the GST Council in its next meeting.
While the reforms are expected to boost consumption and support broader economic growth, cigarette companies face continued pressure as the tax incidence on tobacco remains unchanged. Market watchers noted that the government’s decision underscores its intent to keep the industry under tight fiscal control, despite easing rates across most other sectors.