Strategic Tax Shift: Centre targets harmful industries to fund defence & health sectors

Union Finance Minister Nirmala Sitharaman on Monday moved two crucial fiscal legislations in the Lok Sabha to impose excise duty on tobacco and tobacco products as well as to impose a new cess on the manufacture of pan masala and other notified goods, contending that such steps were necessary to create assured resources for national security and public health at a time when India was confronted with complex internal and external challenges.

- SIMONTINI BHATTACHARJEE

The Health Security to National Security Cess Bill, 2025, was pitched by the government as a strategic fiscal instrument to build a permanent, predictable funding stream for two of the most critical priorities of the country: defence preparedness and public health resilience. Officials said that the move reflects a broader shift in policy thinking on recognising health emergencies as threats to national security, lessons drawn most sharply from the COVID19 pandemic.

Under the proposed law, the cess is not to be imposed on declared output but based on manufacturing capacity, mainly speed and packing capacity of high-speed machines used to manufacture pan masala and similar products.

The government's reasoning has its roots in a perpetual concern about tax evasion and under-reporting in such industries. By shifting the tax base to machine capacity, the central government expects to plug revenue leakages and ensure a steady flow of funds regardless of fluctuations in production figures.

Top officials in the finance ministry explained that the proceeds of the cess, which would be credited to the Consolidated Fund of India and subsequently appropriated by the Parliament, are to be used to strengthen public health systems, disease surveillance, emergency medical infrastructure and pandemic preparedness, as well as to finance defence modernisation, border security and internal security apparatus.