GST Council Proposes Major Rate Changes on Tobacco, Insurance, and Luxury

Ahead of the 55th GST Council meeting in Jaisalmer on December 21, the Group of Ministers (GoM) has recommended notable changes to GST rates for 148 items, including tobacco, aerated beverages, health insurance, and garments.

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Key Highlights of Proposed GST Changes:

Demerit Goods:

A special GST rate of 35% has been suggested for aerated beverages, cigarettes, and tobacco products. This proposal could significantly affect industries related to these items.

Insurance Sector:

Positive reforms have been proposed, including:

• Reduction in GST on health insurance premiums from 18% to 5%.
• GST exemption for premiums paid by senior citizens.
• GST exemption on health insurance premiums up to ₹5 lakh per annum for non-senior citizens.
• Exemption for pure term life insurance premiums.

Luxury Items:

GST on wristwatches priced above ₹25,000 and shoes over ₹15,000 per pair is set to increase from 18% to 28%.

Market Reaction:

Tobacco and Beverage Companies:

ITC: The proposed higher GST rates on cigarettes could impact ITC’s revenues from its core business. However, its diversified operations in FMCG and hospitality may buffer some effects. ITC shares dropped 1.7% to ₹469.

Godfrey Phillips: Shares declined over 1% to ₹5,694, reflecting market concerns over tax hikes. Tobacco products accounted for a significant portion of the company's FY24 revenue.

VST Industries: Shares initially dropped nearly 2% before stabilizing. The company's FY24 cigarette sales rose marginally to ₹1,391.9 crore.

Varun Beverages: The PepsiCo franchisee saw a 2% dip to ₹620 amid concerns over higher taxes on aerated beverages. Despite this, its Q3CY24 revenue increased by 24% YoY to ₹4,804.7 crore.

Insurance Sector:

Niva Bupa Health Insurance: Shares surged 10% to ₹82, reflecting optimism over proposed tax reliefs for the insurance sector.

Star Health & Allied Insurance: Shares rose nearly 4% to ₹484 after previous months of negative performance. The company had reported a Q2 net profit decline of over 11% YoY to ₹111.3 crore.

Luxury Retail:

Ethos: Shares dropped nearly 2% to ₹3,222, likely in response to the proposed GST hike on premium watches. The company posted a 26% YoY rise in Q2FY25 revenue to ₹297 crore, with PAT growth of 14%.

Outlook:

While the proposed tax increases may weigh heavily on sin goods and luxury items, the potential relief for the insurance sector has been positively received by investors. These developments highlight the balancing act of the GST Council between revenue generation and sector-specific support.