The GST Council has raised taxes on sin and luxury goods from 28% to 40%. This change is part of the upcoming GST 2.0 two slab system which features 5% and 18% as standard rates, with 40% reserved for harmful or luxury items. The new structure will take effect con September 22, 2025.
What Is Sin Tак?
A sin tax is a levy on items that are harmful to health and society, for example, tobacco and alcohol By increasing their prices, the government aims to limit the consumption of such products while generating revenue. Tobacco, for example, already costs the economy over 1% of GDP annually.
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Which Goods Fall Under 40% Stab?
Products affected include:
- Tobacco and related items: cigarettes, cigars, gutkha, chewing tobacco, paan masala
- Sugary beverages: carbonated, flavored, and energy drinks.
- Luxury cars, high-end petrol and diesel vehicles.
- Alcohol remains outside GST and is taxed separately by states
- Other high-taxed imports and selected transport services.
Why Has It Been Imposed?
Officials say the hike is meant to “revamp and simplify the structure in a holistic way rather than make piecemeal changes. Analysts note that while consumption of such goods is highly price inelastic, the government expects significant revenue gains.
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Impact on Businesses and Consumers
For companies like ITC, which earns over 80% of its profit from cigarettes, the structure poses both risks and relief.
Brokerage firm Jefferies said, “The government intends to maintain revenue neutrality….which we would see as a relief for ITC.”
However, trade groups argue that higher taxes may fuel smuggling, hurt FMCG growth and burden lowand middle-income households. Beverage industry bodies have also warned of job losses if levies remain at 40%.
