GST reform: Analyzing its impact and the unfinished business in tobacco taxation
The article reviews eight years of Goods and Services Tax (GST) in India, acknowledging its success in unifying the market, enhancing economic efficiency, and significantly boosting national revenue, with collections reaching ₹22.08 lakh crore in 2024-25. However, it highlights a major shortcoming in public health, specifically tobacco taxation. Since GST implementation, there have been no significant tax increases on tobacco products, leading to increased affordability and undermining public health goals. The current tax burden on tobacco products remains well below the WHO recommendation of 75%. The article advocates for raising GST rates on tobacco to the peak 40% and increasing specific excise duties to reduce consumption and boost revenue.
Key Points
- GST has successfully unified India's market, improved economic efficiency, and significantly increased national revenue since its introduction in 2017.
- A major flaw in the GST regime is the lack of significant tax increases on tobacco products, which has made them more affordable and hindered public health efforts.
- The current tax burden on tobacco products is significantly lower than the World Health Organization's (WHO) recommended 75% of the retail price.
- The article proposes a dual strategy of raising GST rates on tobacco to the maximum 40% and increasing specific excise duties to achieve public health and fiscal objectives.
- The potential expiration of the GST compensation cess in March 2026 poses a risk of further reducing tax burdens on tobacco products.
Exam Facts
- GST was introduced in India on July 1, 2017.
- Gross GST collections reached ₹22.08 lakh crore in 2024-25.
- The World Health Organization (WHO) recommends a 75% tax burden on tobacco products.
- The GST compensation cess is scheduled to expire in March 2026.
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