Sin goods likely to face additional levy over 40% GST: CBIC Chief

To ensure that the tax incidence on sin goods like tobacco and cigarettes continues at the current level, the government is likely to impose an additional levy over the 40% rate of goods and services tax proposed on these items.

“Under GST, 40% is the maximum levy which can be charged. For the balance, we will find some mechanism to keep the incidence at the same level as now,” said Sanjay Kumar Agarwal, Chairman, Central Board of Indirect Taxes and Customs (CBIC). He, however, did not elaborate on the mechanism that would be used for the additional levy.

In case a legislative amendment or a Bill is required, it will be taken care of at the time, he further said in an interview to Business Today.

However, ultra luxury items such as high-end cars and bikes are likely to be spared the additional levy and will be taxed at the rate of 40%.

Under the new GST rate structure, sin goods and ultra luxury items will be taxed at 40% instead of the current 28%. The compensation cess of 28% is also set to come to an end later this year, which could in effect lower the rates of GST on these items.

Agarwal further explained that the compensation cess is likely to continue until December 2025 as against the earlier expectation that it would come to an end by October 31 this year.

The CBIC is also working on smooth implementation of the new rates of GST, which will come into effect from September 22.

Agarwal explained that two exercises are currently underway. “First, we will have to issue the necessary notifications, and notifications will have to be issued by Centre as well as by states. We will be completing that exercise soon. Second, parallelly, necessary changes are being made in our IT systems to take care of the changes in rates, as well as the new simplified registration process and refund process,” he said.

Industry too will have to update their ERPs with new rates to ensure that the invoicing is done correctly from September 22, he further said.