By TIOL News Service

NEW DELHI, DEC 03, 2024: THE Group of Ministers (GoM) on GST rate rationalisation, which met yesterday in New Delhi with full strength, has triggered an earthquake across the industry with its recommendation to create a new slab of 35% for a few demerit goods. Some of the items which are going to bear the brunt are tobacco and tobacco products and aerated beverages. And its side-effect which was recorded today, was a sharp fall in the share prices of ITC, Godfrey Phillips and Varun Beverages Ltd.

The GoM has also recommended tweaking of tax rates on 135 items - many of them are of mass consumption. The tax rates are going to be reduced for items like garments, exercise notepads, bicycles and many more if the GST Council approves the recommendations at its 21st December meeting at Jaisalmer. The one yardstick which has been applied to the rate-fiddling exercise is the nature of mass consumption as an essential item of sort. Any good falling under the category of discretionary spending such as cosmetics, expensive readymade garment and wristwatches, will move to a higher slab from the present slab. Similarly, some of the services of mass consumption like health insurance is likely to be exempted up to a threshold.

What was the rationale behind such recommendations? As per sources in the GoM, the general consensus is to merge 12% and 18% slabs into 15% - a new slab, in a phased manner. To achieve the goal, the GoM is of the view that certain items may be moved down from 12% to 5% in a phased manner and a few goods may move up the ladder to 18% which would eventually melt into 15%. Since over 77% of total GST collections comes from 18% slab, the GoM is of the view that there would be revenue loss to the Exchequers and, therefore, some of the States like UP, West Bengal and Karnataka, felt compelled to lend their weight in favour of a new slab of 35%. Since Centre has also been receiving representations from various sectors which produce goods of mass consumption, for rate reduction, it backed the suggestion of these large states, and the GoM unanimously decided to swim with the consensus view.

Unfortunately, a good number of goods may gain out of this exercise but tobacco and gutka and aerated beverages are going to suffer a punishing blow which may, in turn, impact their long-term investments in the country. Although they also generate jobs and revenue for the treasuries, but the baneful impact of these goods have long back scripted their misfortune since the Central Excise days!