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News Topical, Digital Desk : After Prime Minister Narendra Modi's GST 2.0 announcement, there is going to be a big change in the tax structure. Kolkata's Finance Minister has proposed that 40% GST should be imposed on 'sin goods' like cigarettes. He says that additional duty should be imposed above 40%. But to maintain the total tax collection, the government can also impose additional excise or special duty. After this news, the shares of companies came under pressure.
What will happen in GST 2.0?
The current multi-slab GST system is proposed to be replaced with just two rates – 5% and 18%. But a flat rate of 40% will be imposed on 'sin goods' (tobacco, online gaming, etc.). The government has also announced the abolition of compensation cess.
Current tax structure on cigarettes (according to Emkay Global) GST + Cess: 28% GST + 5–36% Variable Cess = Total 15–26% MRP. Fixed Cess (per cigarette): ₹2.1–₹4.2 per stick = 25–30% MRP. Other duties: Basic excise and NCCD = 5–7% MRP. Total tax burden: 48–55% MRP.
What will be the difference in the new system- If only 40% flat GST is levied on cigarettes, then it will look less superficially (about 26% MRP). But the government plans to keep the tax collection the same by adding excise/special duty. Emkay Global believes that the tax will be neutral or slightly higher, the industry will not get any major benefit. Signal for investors- In the short term, there is pressure on tobacco companies like ITC, Godfrey, VST. The industry outlook will depend on how the tax structure is implemented in the long term. The government's focus is on maintaining revenue and strictness on 'sin goods', so there is little hope of relief.
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