Decline in GST revenue to have a direct impact on ITC as govt may turn to tobacco to hike tax

  • Market participants think that whenever the government is in need of funds, it turns to the cigarette and coal sectors by increasing taxes

  • In June this year, various public health groups along with doctors and economists had called upon GST Council to impose 28% tax on 'bidi'

  • The government last week constituted the panel of officers to suggest steps to expand the tax base and check evasion

The decline in GST collection may have a direct impact on firms manufacturing tobacco products.

ITC, the market leader in cigarettes, may feel the impact if the tax on tobacco products is hikded in a bid to recover the shortfall in the revenues, according to a media report.

CLSA, the capital markets and investment group, trimmed weight on ITC in its model portfolio to ‘neutral’ on concerns of a dip in revenues from Goods and Services Tax (GST) may force the government to hike taxes on tobacco and coal, reported The Economic Times.

 Decline in GST revenue to have a direct impact on ITC as govt may turn to tobacco to hike tax

Representational image. Reuters

Market participants think that whenever the government is in need of funds, it turns to the cigarette and coal sectors by increasing taxes there, said the report.

“This (the shortfall) raises the concern of a possible sharp GST increase on tobacco and coal (cess products) which could be mitigated if GST grows 17 percent in FY21,” CLSA was quoted as saying in the report.

In June this year, various public health groups along with doctors and economists had called upon the GST Council to classify 'bidi' as a demerit good and impose the highest 28 percent tax on it for saving millions of lives, reported Business Today.

They had sought the government's help to classify 'bidis' as a demerit good and tax at the maximum rate plus cess, the report said. They had also said that the 28 percent GST rate category should be retained for demerit or sin goods such as tobacco.

Meanwhile, a high-level panel constituted by the government to suggest measures to augment GST revenue collection will hold its first meeting today, reported PTI.

The government last week constituted the panel of officers to suggest steps to expand the tax base and check evasion in the backdrop of falling revenue collections under GST.

The GST collections dropped sharply to a 19-month low in September to Rs 91,916 crore, reflecting the slowdown in the economy.

With PTI inputs

Updated Date: Oct 15, 2019 15:32:44 IST