In India, rising health concerns and the financial burden of non-communicable diseases linked to products such as tobacco, alcohol, sugary beverages, and gambling-related activities have fueled the need for such a tax. By imposing higher GST rates on sin activities, the government
aims to address social and health-related issues while strengthening fiscal resources. This move reflects a strategic effort to balance public health objectives with economic considerations, ensuring long-term societal benefits.
What is the Proposed Tax Rate?
The Indian government is exploring a sin tax under GST to curb the consumption of products deemed harmful to health or society, such as tobacco, alcohol, and sugary beverages. Sin taxes are designed not only to discourage unhealthy habits but also to generate additional revenue for public welfare programs and healthcare infrastructure.
The Group of Ministers (GoM) on GST rate rationalization has proposed raising the tax rate on products like aerated beverages, cigarettes, and other tobacco-related items to 35%, up from the current 28%. This recommendation, reported by PTI, aligns with the government’s broader efforts to increase revenue collection by adjusting tax rates on specific goods.
The move targets products categorized under sin taxes due to their potential health hazards, aiming to discourage consumption while boosting fiscal resources. If implemented, the revised tax rates could have significant implications for industries and consumers, reflecting the government’s intent to balance public health concerns with economic objectives. This development underscores the strategic focus on enhancing revenue and addressing social challenges.
3 Stocks That will be the Most Affected by This Change
ITC is a diversified conglomerate with a presence across multiple business segments, including FMCG, hotels, paperboards, packaging, and agriculture. It is a leader in the Indian tobacco market, manufacturing a wide range of cigarettes and tobacco products.
The company’s FMCG portfolio includes personal care, packaged foods, and lifestyle products under popular brands like Aashirvaad, Sunfeast, and Fiama. ITC is also a prominent player in the hospitality sector and operates a robust agri-business supporting its FMCG and export ventures.
Share Price
The shares of ITC are trading at Rs. 468.35 down by 1.91% from its previous close of Rs. 477.2 as of December 03, 2024. The shares also touched and intraday low of Rs. 462.75.
Varun Beverages Limited:
Varun Beverages is one of the largest franchisees of PepsiCo globally, engaged in the production and distribution of carbonated soft drinks, non-carbonated beverages, and packaged water.
The company’s product portfolio includes popular brands like Pepsi, Tropicana, Aquafina, and 7UP. With an extensive distribution network across India and international markets, Varun Beverages caters to growing consumer demand for beverages. It focuses on expanding its reach and enhancing operational efficiencies to maintain its leadership in the beverage segment.
Share Price
Varun Beverages shares are currently trading at Rs. 621.75 down by 1.66% from its previous close of Rs.632.25 as of December 3, 2024.
Godfrey Phillips India Ltd:
Godfrey Phillips India is a prominent player in the tobacco and cigarettes market, manufacturing leading brands such as Four Square, Red & White, and Cavanders. Beyond tobacco, the company has diversified into tea, confectionery, and other FMCG products.
It also operates in the international business space through exports of premium tobacco and products. With a focus on quality and innovation, Godfrey Phillips is a significant contributor to the Indian tobacco industry and is expanding its footprint in non-tobacco segments.
Share Price
Godfrey Phillips India Ltd is another company that will be directly impacted by this new proposal if implemented. The shares of the company fell by more than 2% in the morning hours from Rs. 5,757 to Rs. 5,578. Currently, the shares of the company are trading at Rs. 5,700 as of December 3, 2024.
Conclusion
The proposed 35% GST on tobacco, aerated drinks, and related products signifies a strategic government approach to address public health concerns while generating additional revenue. By implementing sin taxes, the government aims to discourage consumption of harmful products and support social welfare programs.
Companies like ITC, Varun Beverages, and Godfrey Phillips India will likely face significant market challenges, necessitating adaptive strategies to mitigate potential financial impacts of these proposed tax reforms.
Written By: Dipangshu Kundu
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