Alcohol, cigarette, gaming stocks slide up to 4.5% as govt proposes 40% sin tax under GST 2.0 overhaul

Stocks of alcohol, cigarette, and gaming companies fell up to 4.5% on Monday after the government proposed a 40% “sin tax” under its new GST 2.0 blueprint. The Centre is considering a major revamp of the GST structure, streamlining it into two key slabs—5% for essential items and 18% for most goods—along with a special 40% rate for luxury and sin products such as alcohol, tobacco, and related categories.

However, the total incidence of tax on tobacco remains at 88%, it means that even after rejigging GST slabs, the overall effective tax burden on tobacco products will still be 88%, combining GST and cess.

Shares of Godfrey Phillips recorded the steepest fall in today’s session, slipping 4.4% to a low of Rs 9,735.35. Nazara Technologies shares followed with a decline of 2.4% to Rs 1,382.55, while Delta Corp dropped 1.7% to Rs 83.64.

Among liquor stocks, Globus Spirits fell 1.4% to Rs 1,193.00 and United Spirits eased 1.2% to Rs 1,302.85. Meanwhile, heavyweight ITC registered a marginal decline of 0.55% to a low of Rs 409.10.

A sin tax is an excise duty imposed on goods considered harmful or costly to society. These taxes are typically levied on products like cigarettes, alcohol, gambling, and vaping, with the revenue often used to fund government programs. By increasing the cost of consumption, sin taxes are designed both to discourage use and to provide additional revenue for public welfare.

As part of the rejig, nearly all goods taxed at 12% are expected to move into the 5% bracket, while around 90% of goods under the 28% slab are likely to shift to the 18% category.

Everyday essentials such as food, medicines, medical devices, stationery, educational items, and personal care products like toothbrushes and hair oil will either remain tax-free or fall under the 5% slab. Items used by the middle class, including air conditioners, refrigerators, and televisions, are expected to be taxed at 18%.

The government also indicated a major cut in GST on health and term insurance, while sectors such as automobiles, handicrafts, farm goods, textiles, fertilisers, and renewable energy were highlighted for special attention. In addition, the reduction in slabs is expected to help end classification disputes on items like namkeens, parathas, buns, and cakes, which often faced varying tax rates due to ingredient differences.

Certain special rates will remain unchanged: 0.25% on diamonds and precious stones and 3% on jewellery, in order to promote industry-specific growth.

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