Meaning of term demerit under GST

Posted on 22 April 2023 Category : GST terms

Term demerit under GST

De-Merit Goods:

In this article, the information about term demerit under GST is explained.

Demerit or sin goods are, as the name suggests, in economics, demerit goods are "goods or services whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on consumers themselves". These are usually over-consumed if left to market forces.

In economics, a demerit good is "a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves". It is over-consumed if left to market forces.

Examples of demerit goods include tobacco, alcoholic beverages, recreational drugs, gambling, junk food and prostitution. Because of the nature of these goods, governments often levy taxes on these goods (specifically, sin taxes), in some cases regulating or banning consumption or advertisement of these goods.

GST on Sin/De-Merited Goods:

The GST council also agreed to cap the cess on various so-called demerit (or sin and luxury) goods in the legislation. The cess on colas and cars has been capped at 15%, which means that the total tax incidence on sweetened drinks and cars cannot be more than 43% (tax rate of 28%+cess of 15%).

In the case of cigarettes and chewing tobacco, the cess levied could be either 290% or Rs4,170 per thousand sticks or a combination of both.

These cess rates are an enabling provision and the actual tax incidence could be lower, depending on the decision of the GST council.

Interestingly, the council has decided to bring in an enabling provision for levy of cess on all cars and not only on luxury cars. This means that the council, at a later date, could decide to levy a cess over and above the 28% tax rate on non-luxury cars as well.

The information provided here is about term demerit under GST. If you would you like to add more information about term demerit under GST, share below your thoughts.

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CGST Act Section 162 Bar on jurisdiction of civil courts

CGST Act Section 163 2017 Levy of fee

CGST Act Section 164 Power of Government to make rules

CGST Act Section 165 Power to make regulations

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CGST Act section 169 Service of notice in certain circumstances

CGST Act Section 170 Rounding off of tax