'Does Congress want tobacco to be taxed at just 5% GST?' Sitharaman on opposition to 40% GST on sin goods

Finance Minister Nirmala Sitharaman.

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.

In a major tax reform, the GST Council agreed to cut GST slabs to two: 5% and 18%. The existing 12% and 28% will be eliminated, effectively reducing the prices of several items. The new rates will come into effect from September 22, the first day of Navaratri.

However, a special 40% slab has been proposed for a select few items such as high-end cars, tobacco and cigarettes.

While briefing the media after the GST Council Meeting, Sitharaman pointed out the Opposition questioned the 40 percent slab on certain goods.

As reported by NDTV, taking a swipe at the Congress, Sitharaman said, "Does the Congress party want tobacco and gutha 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."

"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 shot back, NDTV reported.

While the new rates will come into effect from September, tobacco and cigarettes will continue to be charged at the current GST rate of 28 percent plus a compensation cess.

"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," Sitharaman said.

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