Tax On Sin Goods Won’t Be Cut, Single GST Rate Seen As Future Move, Says CBIC Chairman

Central Board of Indirect Taxes Chairman Sanjay Kumar Agarwal, while speaking at the NDTV Profit GST Conclave, said that the central government’s stand on sin goods is that the tax will not be lowered. However, beyond the 40%, an additional levy will be imposed under constitutional provisions.

Agarwal added that somewhere in the future when the socio-economic conditions of the country are different, another reform can be carried out by eliminating the merit rate of 5% and retaining only one standard rate. He said that a single GST rate can lead to many benefits, including the removal of inverted duty structures.

Agarwal explained that this depends on achieving income parity across the population, which may be years away. Until then, the current rate structure will remain, keeping certain goods at lower rates for affordability.

He mentioned that in the previous financial year, the total GST collection amounted to Rs 22 lakh crore, marking the right time for reforms. These reforms address criticisms of GST being complex and creating uncertainty among taxpayers due to varied tax rates such as 5%, 12%, 18%, and 28%. The intention is to simplify the tax system.

Regarding revenue implications of rate cuts, Agarwal noted that while it is difficult to precisely estimate the impact due to complexities involved, consumption patterns from the 2023-24 period suggest an estimated effect of Rs 48,000 crore.

He said that any benefit from reduced rates must be passed on to the final consumer to increase consumption.

Regarding compensation cess, he clarified that it was imposed for specific purposes like healthcare, agriculture, and education, and was designed to compensate states for revenue loss during the initial five-year period ending in June 2022.

Post that period, the cess is collected only for loan repayment and is subject to discontinuation, as seen in past cases such as automobiles and coal.

On concerns about anti-profiteering measures, he explained that provisions already exist under GST law and that past rate cuts did not result in significant complaints. This gives confidence that benefits will be transferred to consumers, Agarwal said.

Price monitoring is being undertaken by the government and pre- and post-rate-cut prices are being tracked, the CBIC chief added.