GST 2.0: What Are Sin Goods And Why Do They Face High Taxes?
The GST Council has put harmful and luxury items like tobacco, sugary drinks and expensive cars into a 40% tax bracket.
The Goods and Services Tax (GST) Council has introduced a special 40% tax slab for ‘luxury’ and ‘sin’ goods under the new next-generation reforms announced on Wednesday. The so-called “sin goods” such as alcohol and tobacco, will now be subject to 40% GST instead of the earlier 28%.
The GST Council approved a two-tier tax structure with 5% and 18% slabs for a wide range of products. The Council scrapped the 12% and 28% slabs.
But what exactly are “sin” goods, and why are they treated differently?
Sin Goods: What Are They?
Sin goods are items that are deemed detrimental to society as a whole or to the health of people. In India, these consist of the following:
Tobacco products, including pan masala, gutka, chewing tobacco, cigars and cigarettes.
Sugary and caffeinated beverages, such as energy drinks and carbonated drinks.
Processed junk food that is high in harmful fats, sugar, or salt.
However, alcohol is not covered under the GST system and is still subject to state-level excise taxes.
Sin Tax: What Is It?
A sin tax is a higher tariff applied to products that are thought to be harmful to society or health. There are a couple of reasons to levy this tax.
Firstly, by raising the cost of such goods, the government seeks to deter consumption. The goal of higher costs is to decrease demand for products associated with addiction, health issues, or environmental harm. Secondly, the state receives funding from sin taxes. The money raised is allocated towards health and public welfare initiatives.
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Why Are Taxes On Sin Goods Higher?
The reasoning is simple. The government aims to reduce the negative effects of sin goods by taxing them at the highest rate. These items are frequently linked to social expenses, including pollution and growing public healthcare costs, as well as health hazards like cancer, diabetes, obesity and addiction.
By putting them in the 40% GST bracket, these products are priced much more than essential goods, indicating that their use comes at a huge cost to society as well as the consumers.
Goods Covered Under 40% Slab
With the new GST regime, the 40% slab will include:
Cigarettes, cigars, chewing tobacco, gutka and pan masala.
Sugar-sweetened and caffeinated drinks.
Processed junk foods.
Luxury vehicles.
Coal and other polluting fuels.
By sharply raising rates on sin goods, the government hopes to curb harmful consumption while simultaneously strengthening the exchequer.
