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Committee on Possible Tax Rates under GST for sin tax on aerated drinks

14,December, 2015
 
 
Our Bureau, New Delhi
A Committee on Possible Tax Rates under GST, headed by chief economic adviser Dr Arvind Subramanian, has recommended that sin/demerit rate be fixed at about 40 per cent (Centre plus states) and applied to luxury cars, aerated beverages, paan masala, and tobacco and tobacco products (for the states). The recommendations were made in a report the committee recently submitted to Union finance minister Arun Jaitley.

On the Revenue Neutral Rate (RNR), the committee recommended the same in the range of 15 per cent and 15.5 per cent (Centre and states combined) with a preference for the lower end of that range based on the analysis made in the report.

The committee recommends a two-rate structure. In order to ensure that the standard rate is kept close to the RNR, the maximum possible tax base should be taxed at the standard rate. The committee would recommend that lower rates be kept around 12 per cent (Centre plus states) with standard rates varying between 17 and 18 per cent.

However, when asked about the possible rates to be applicable on the processing sector, officials with MoPFI stated that the rates were yet to be finalised.

According to the committee, it is now growing international practice to levy sin/demerit rates—in the form of excise outside the scope of the GST–on goods and services that create negative externalities for the economy. As currently envisaged, such demerit rates—other than for alcohol and petroleum (for the states) and tobacco and petroleum (for the Centre)—will have to be provided for within the structure of the GST. The foregone flexibility for the Centre and the states is balanced by the greater scrutiny that will be required because such taxes have to be done within the GST context and hence subject to discussions in the GST Council. Accordingly, the committee recommends that this sin/demerit rate be fixed at about 40 per cent (Centre plus states) and apply to luxury cars, aerated beverages, paan masala, and tobacco and tobacco products (for the states).

Summary of Recommended Rate Options (in per cent)

RNR

Rate on precious metals

"Low" rate (goods)

"Standard" rate

(goods and services)

"High/Demerit" rate or Non-GST excise (goods)

Preferred

15

6

12

16.9

40

 

 

4

17.3

 

 

 

2

17.7

 

Alternative

15.5

6

12

18.0

40

 

 

4

18.4

 

 

 

2

18.9

 

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