Retailers Urge GST Council And FinMin To Reconsider 35% Tax Rate Proposal

The statement warned that imposing a 35 per cent tax on demerit goods such as tobacco and aerated drinks will make these products unaffordable for the average consumer

The Indian Sellers Collective, an umbrella organisation representing trade associations and sellers nationwide, has urged the finance minister and the GST Council to reject certain GST rate rationalisation proposals, including suggesting a special 35 per cent rate on certain products.

The sellers' body argues that introducing a fifth GST slab of 35 per cent on demerit goods such as aerated beverages, cigarettes, and tobacco, along with a pricing-based rate structure, would significantly disrupt and fundamentally alter India's GST framework, leading to harmful consequences.

In a statement released ahead of the 55th GST Council meeting scheduled for December 21, 2024, in Jaisalmer, Rajasthan, the Indian Sellers Collective stressed that these recommendations contradict both the letter and the spirit of a "good and simple tax."

"On the contrary, it will hurt the profit margins of the retailers, lead to compliance nightmares and fuel a parallel economy. This move will primarily benefit Chinese producers who dominate the market of cheap products at the cost of Indian producers," it said.

Abhay Raj Mishra, Member and National Coordinator of the Indian Sellers Collective warned that if the GoM recommendations are adopted at the upcoming GST Council meeting, all the benefits of the GST regime will be reversed, causing lasting damage to India's extensive, age-old retailer network.

"A 35 per cent tax on demerit goods like tobacco and aerated beverages will exponentially grow their illicit market, and a large number of sellers will move out of the formal economy. A pricing-based rate structure will trigger either manipulation or re-engineering of business models to beat the system. For small and mid-tier sellers, this will mean compliance nightmares and a very high risk of litigation," he said.

"Traditional Indian retail is already being eroded by e-commerce and quick-commerce, and such a massive shift in GST will be its final death knell. The GoM has been misguided by vested interests who want Indian retailers and intermediaries to weaken and become subservient to their agenda," he added.

The statement warned that imposing a 35 per cent tax on demerit goods such as tobacco and aerated drinks will make these products unaffordable for the average consumer, pushing them towards illicit, substandard, and unsafe alternatives like smuggled or counterfeit bottled beverages and cigarettes.

It also highlighted that smuggling syndicates would dominate the market for demerit goods, and small retailers would be forced to cooperate with them to survive.

Furthermore, the introduction of multiple slabs and rate-based sub-slabs would complicate compliance for small and medium business owners, potentially driving them back into the cash economy. The statement added that this could lead to increased manipulation, under-invoicing, and serious legal consequences.