Higher GST on sin goods will offset losses from insurance

AN INCREASE IN goods and services tax (GST) on several items and a special levy of 35% on "sin goods" like cigarettes, as proposed by a group of ministers (GoM) formed by the GST Council, are expected to help partially offset revenue shortfalls due to abolition of the tax on insurance premiums, experts say.

- PRIYANSH VERMA New Delhi, December 3

According to sources, the GoM has estimated that the rejig of rates for 148 items is likely to result in an additional revenue of about ₹22,000 crore every year for the Centre and states. This would, to some extent, offset the losses due to removal of GST on health and life insurance premiums.

However, a revenue neutral rate (RNR) through rate rationalisation measures – as being talked about – is unlikely to be achieved anytime soon, experts say. Krishan Arora, partner, Grant Thornton Bharat, said the GoM's proposal appears to be aimed at compensating for potential revenue shortfalls from reduced rates on common-use items and exemptions to health and life insurance premiums. "By rationalising rates, the GoM's strategy appears to seek a revenue-neutral position," he said.