What are ‘sin goods’ that will attract 40% GST?

The government has brought in a new 40 per cent Goods and Services Tax (GST) slab, the highest under the system, for “sin goods” and some luxury products.

Union Finance Minister Nirmala Sitharaman announced this as part of the new GST reforms, which also cut taxes on a range of items.

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The revised structure replaces the earlier slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent, moving to just two rates: a lower 5 per cent for select goods and a standard 18 per cent for most others.

But what exactly are sin goods? Which items are covered in this category?

Let’s take a look:

What are sin goods?

A small group of products, such as high-end cars, tobacco and cigarettes, are often called “sin goods” or “demerit goods”.

Under GST, this category covers SUVs, tobacco, aerated drinks, online gambling and gaming, and other luxury or harmful items. These attract the highest tax and cess, as the aim is to limit their social or health impact in India.

Items under this list include tobacco, pan masala, gutkha, cigarettes, luxury cars, online gambling or gaming, caffeinated drinks, coal, lignite, peat and carbonated beverages.

Because of the risks they pose to health and society, these goods face the steepest tax rates, which have now gone up from 28 to 40 per cent.

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On top of GST, such goods also attracted a compensation cess designed to reduce use and add to government revenue. For example, chewing tobacco currently carries a 96 per cent cess.

Alcohol, however, remains outside the GST system and is still taxed separately by states through excise duties.

Notably, governments across the world generally impose higher taxes on these products to discourage their use while generating funds for public welfare.

In India, sin goods have always been taxed at the highest level. Earlier, they attracted 28 per cent GST along with a Compensation Cess. With the cess now being phased out, the same cost has been brought under one single 40 per cent GST slab.

List of ‘sin goods’ that are under 40% GST slab’

These are the items in the ‘40% club’:

3. Pan masala: 28% to 40%
4. All goods (including aerated waters) with added sugar, other sweetening matter or flavour: 28% to 40%
5. Other non-alcoholic drinks: 18% to 40%
6. Carbonated fruit drinks or carbonated drinks with fruit juice: 28% to 40%
7. Caffeinated beverages: 28% to 40%
8. Unmanufactured tobacco; tobacco waste (excluding tobacco leaves): 28% to 40%
9. Cigars, cheroots, cigarillos and cigarettes made from tobacco or tobacco substitutes: 28% to 40%
10. Other manufactured tobacco and tobacco substitutes; “homogenised” or “reconstituted” tobacco; tobacco extracts and essences: 28% to 40%
11. Products with tobacco or reconstituted tobacco for inhalation without burning: 28% to 40%
12. Products with tobacco or nicotine substitutes for inhalation without burning: 28% to 40%
13. Motor cars and other vehicles mainly designed to carry passengers, including station wagons and racing cars. Excluded from this group are vehicles carrying 10 or more persons including driver; LPG or CNG cars with engines not above 1200cc and length not above 4000 mm; diesel cars not above 1500 cc and 4000 mm; ambulances; three-wheelers; cars with both spark-ignition engines and electric motors not above 1200cc and 4000 mm; and cars with both diesel engines and electric motors not above 1500cc and 4000 mm: 28% to 40%
14. Motor vehicles with both spark-ignition engines and electric motors, above 1200cc or 4000 mm: 28% to 40%
15. Motor vehicles with both diesel engines and electric motors, above 1500cc or 4000 mm: 28% to 40%
16. Motorcycles with engines above 350 cc: 28% to 40%
17. Aircraft for personal use: 28% to 40%
18. Yachts and other vessels for leisure or sports: 28% to 40%
19. Revolvers and pistols: 28% to 40%
20. Smoking pipes (including pipe bowls), cigar or cigarette holders, and their parts: 28% to 40%

Why bidis will get cheaper but cigarettes will cost more

The prices of cigarettes and other tobacco products like gutkha are set to rise after the latest GST changes.

Bidis, however, will see a slight drop in price. The GST on bidis has been cut from 28 per cent to 18 per cent, while the GST on tendu leaves used to roll bidis has been reduced from 18 per cent to 5 per cent.

But why has this been done?

The lower GST on bidis seems intended to support the local bidi industry, which provides work to more than 70 lakh people.

The move has also sparked debate online, with many asking if cigarettes are harmful, why bidis are being treated differently.