Luxury cess may fold into GST, 12% slab likely to go

• After 8 years, the compensation cess on sin and luxury goods (e.g., tobacco, aerated drinks, cars) may be merged into GST rates.

• The cess, introduced to compensate states for GST transition losses, is currently set to end by March 2026.

No Impact on Consumer Prices (in Total)

• The integration will not change final prices, but the GST rate itself will rise to absorb the cess.

• Currently, cess proceeds go to the Centre.

• Post-merger, GST (including the earlier cess portion) will be shared with states via CGST–SGST mechanism, increasing state revenue.

• 12% GST Slab Likely to Be Removed

• Centre proposes to remove the 12% slab to simplify GST rates.

• Items in this slab may move to 5% (benefiting consumers) or 18% (increasing prices).

• Items in 12% slab: Cheese, confectionery, preserved fish, certain footwear, apparel, bricks, clean energy devices.

• Moving to 5% slab could lower prices and boost consumption.

• Shift to 18% slab could raise prices and affect sentiment.

• Essential life-saving drugs will remain at 0–5% GST.

• Government may consider moving other critical pharma items (now under 12%) to 5%.

• Policy Timing and GST Council Meeting

• GST Council, chaired by FM, may meet in July or after Monsoon Session.

• Proposals may be considered in light of the upcoming Sixteenth Finance Commission (SFC) report for FY27 onward.

• Eliminating 12% slab will reduce classification disputes, simplify compliance, and align with global best practices.

• A more predictable GST structure could help in inflation control and stimulate demand.