August 18, 2025 — The Indian government has proposed introducing a 40% Goods and Services Tax (GST) slab aimed at luxury items and products considered harmful to public health, marking a major step in the ongoing GST reform. The move is expected to cover select items including pan masala, gutkha, tobacco products, luxury cars and SUVs, as well as online gaming services.
Currently, tobacco products and online gaming attract a GST rate of 28%, but the proposed 40% slab would significantly increase their tax burden. Luxury cars and SUVs are also likely to fall under this higher tax category. Officials say the measure is intended to curb consumption of non-essential and potentially harmful goods while generating additional revenue for the government.
The proposed 40% slab forms part of a larger GST overhaul, which seeks to simplify the existing four-tier tax structure of 5%, 12%, 18%, and 28% into just two main slabs of 5% and 18%. Under this plan, many items currently taxed at 28%, such as small cars and insurance premiums, could see reduced rates, benefiting consumers. The introduction of the 40% slab on select goods is expected to offset any revenue losses from these reductions.
The announcement has drawn mixed reactions. Shares of companies linked to alcohol, tobacco, and online gaming fell by up to 4.5% following the news, reflecting investor concerns over the impact on consumption and profits. Conversely, automobile manufacturers of small cars, including Maruti Suzuki and Tata Motors, welcomed the anticipated tax reductions, which are likely to boost sales and affordability.
State governments, however, have expressed concerns over potential revenue shortfalls and are advocating for significant GST cuts across multiple sectors to stimulate demand and support economic growth.
The proposal is pending approval from the GST Council, which is expected to meet in the coming weeks. If sanctioned, the revised GST structure, including the 40% slab, could be implemented before the end of the current fiscal year.
Industry experts say that while the simplified GST system aims to reduce compliance burdens and enhance economic efficiency, its impact on consumption patterns and sectoral revenues will need careful monitoring in the months ahead.
