Government considers abatement on sin goods under GST 2.0

The Centre may consider offering abatement on sin goods under its proposed GST 2.0 framework, amid industry concerns that a steep hike in tax rates could severely impact the sector, sources familiar with the matter told Business Today.

As part of the upcoming GST overhaul, the government plans to consolidate existing tax slabs into two primary rates, 5% and 18%, phasing out the current 12% and 28% brackets. However, sin goods are likely to attract a higher rate of 40%, according to finance ministry sources.

While the Central Goods and Services Tax (CGST) Act, 2017, does not explicitly define the term “sin goods,” products such as tobacco, cigarettes, aerated drinks, pan masala, and certain luxury items currently fall under this category and are taxed via a compensation cess mechanism, rather than through a dedicated provision in the Act.

Although online gaming is also taxed at a high rate (28%), it falls into a separate category typically treated as a “luxury” or “non-essential service”. However, the Centre may still consider including it in the proposed 40% special tax category, sources said.

In response to concerns about the impact of the 40% rate, the government is reportedly examining the option of abatement under Section 15 of the CGST Act, specifically through Rules 31A, 31B, and 31C, which provide special valuation methods for certain goods and services.

Abatement allows for a reduction in the taxable value, meaning the tax rate remains the same, but is applied on a smaller portion of the price, thus lowering the effective tax burden. According to sources, the government may consider a 5–10% abatement to help the sector absorb the new rate without the need for a sunset clause.

The law committee is examining whether the application of Section 15’s valuation rules would be uniformly viable across all sin goods.

However, this remains just one of several options under consideration, and the Group of Ministers (GoM) on rate rationalisation, which is scheduled to meet on August 21, will decide on the matter.