"Does Congress Want Tobacco Taxed At 5%?" Nirmala Sitharaman On 40% GST Question

In a major reform aimed at providing relief to households, farmers, businesses and the healthcare sector, Finance Minister Nirmala Sitharaman on Wednesday announced a sweeping reduction in Goods and Services Tax (GST) rates on a wide range of essential items, automobiles, agriculture inputs, and electronic appliances.

The GST Council approved rate overhaul by limiting slabs to 5 per cent and 18 per cent effective from September 22, the first day of Navaratri. A special 40 per cent slab is also proposed for a select few items such as high-end cars, tobacco and cigarettes.

Briefing reporters at a late-night press conference after a marathon day-long GST Council meeting, Ms Sitharaman said all decisions were taken unanimously, with no disagreement with any state.

When it was pointed out that some in the Opposition have questioned the special 40 per cent slab, Ms Sitharaman took a swipe at the Congress.

"Does the Congress party want tobacco and gutkha to be taxed at just 5% GST? I fail to understand this. During their tenure, the Congress party believed implementing GST was impossible because states didn't trust the central government. That's why they couldn't implement it," Ms Sitharaman shot back.

"I do not know what word I should use for the Congress. They should make up their mind whether they want to oppose it or support it," she added.

The new rates for all products, except pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi, will be effective September 22. 

Tobacco, gutka, tobacco products and cigarettes will continue to be charged at current 28 per cent plus a compensation cess till such time that loans taken to pay states for revenue loss is fully paid back, said Ms Sitharaman.

Earlier today, Karnataka Chief Minister Siddaramaiah said the central government will lose Rs 15,000 crore every year if it brings in the two-slab GST structure.

"It is estimated that the central government will lose Rs 15,000 crore every year by making GST two slabs structure. We welcome rationalization, but our aim is to protect revenue. For that, eight states have held discussions in Delhi...The loss of Rs 15,000 crores is a big amount," said Siddaramaiah.

The sweeping changes to the complex GST regime were triggered by Prime Minister Narendra Modi during his Independence Day speech on August 15, where he vowed to cut taxes on daily items.

India adopted the GST in 2017, sweeping in more than a dozen domestic state taxes in a bid to unify the economy on the principle of "one nation, one tax, one market". It was hailed as the biggest tax reform since independence from Britain in 1947.

The new system had four tax slabs, of 5%, 12%, 18% and 28%, with scores of goods in each category. An additional levy was imposed above the tax of 28% on some items, such as cigarettes, luxury cars and high-end motorcycles.

But it was criticised for being too complex.

The tax cuts would damp inflationary pressures, and boost chances for further interest rate cuts by the central bank, economists say.

Economists estimate tax cuts will affect state government finances more than the central government, as goods and services tax form a large part of their revenues.