35% GST slab in the works? A look at GST bands and how they are decided

The Group of Ministers (GoM) on GST rate rationalisation has recommended to raise GST on select sinful goods. Here's how GST Council decides on different tax bands

The government is planning to raise Goods and Services Tax (GST) on select goods such as cigarette, tobacco products and aerated drinks, by introducing a new slab of 35 per cent, sources said. The report impacted the markets on Tuesday, with shares of cigarette company ITC and aerated drinks Varun Beverages witnessing a dip.

 

Ahead of the GST Council meeting, a Group of Ministers (GoM) on GST rate rationalisation completed its report, which proposes major adjustments to tax rates on 148 items. This includes revising the rates of products like cigarette, tobacco products and aerated drinks, which are currently under the 28 per cent tax slab. The GoM also recommended an increase in the GST rate on several luxury items such as leather bags, cosmetics, watches and shoes to 28 per cent from 18 per cent now, sources said.  But how does the GST Council decide tax rates for products? And how did they come into being? Let’s find out.

 

Why GST was introduced

 

Before 2017, India had a multi-layered tax system, with many indirect taxes such as the excise duty, VAT, services tax, etc, complicating the process for consumers and producers. The government thus implemented Goods and Services Tax to simplify the process and eliminate taxes levied at each stage of the supply chain. Under GST, tax is levied only at the point of consumption.

 

What are the GST rate slabs?

 

GST rates range from 0 per cent to 28 per cent. Since the inception of the GST, the GST council has revised the GST rates for various products several times.

 

Currently, the GST operates under a four-tier structure with slabs of 5 per cent, 12 per cent, 18 per cent, and 28 per cent. Essential items are either exempt or taxed at the lowest slab, while luxury and demerit goods are subject to the highest slab.

 

The GST rates are decided by the GST Council, which is headed by the Union Finance Minister. The council also has Union Minister of State for Finance and state finance ministers as members, who are known as the Group of Ministers.

 

How are the GST tax slabs decided?

 

The GST Council makes recommendations to the Union and state governments on important issues related to GST, like the goods and services that may be subjected or exempted from GST, special rates for raising additional resources during natural disasters, special provisions for certain states, etc.

 

For example, during the Covid-19 pandemic, the GST Council approved the rationalisation of duty on specified Covid related goods.

 

The council ensures that essential items for the general public do not fall into higher slabs. An additional cess is also imposed on some goods over and above the existing tax rate. Like for goods such as cigarettes and aerated drinks, falling under the highest 28 per cent tax slab, an additional 15 per cent cess is levied.

 

The upcoming GST Council meeting, to be chaired by Finance Minister Nirmala Sitharaman, will be held on 21 December in Jaisalmer.